29 States Fall Below National Subprime Credit User Average, Report Finds
Inside Subprime: April 17, 2019
By Jessica Easto
Those with subprime or bad credit are often the targets of predatory lending, such as payday loans and title loans, since it’s difficult or impossible for them to qualify for traditional financial products. According to a new report, 29 states had fewer subprime credit users than the national average of 34.8 percent in the last quarter of 2018, a slight decrease from the last quarter of 2017. Additionally, all but two states (Delaware and Arkansas) saw a small reduction in the number of subprime credit users within their borders.
A credit score is a way for lenders to assess borrowers’ riskーhow likely it is that they will be able to pay back a loan or bill. A high credit score indicates that a person is more likely to be able to pay their debts in full and on time, and a low credit score indicates that a person is less likely to be able to pay their debts. The national credit bureaus calculate a person’s score with computer modeling, and although they may issue slightly different scores, the high-low principle remains the same.
This study was based on FICO credit scores, which are used in 90 percent of all lending decisions. FICO classifies “subprime credit” as anywhere between 580 and 699. According to the report, the national subprime average is a score of 577 while that national credit score average overall is 701, just higher than the subprime range.
If a borrower has a credit score that falls within the subprime range, it indicates that they have “fair credit but still present some risk to a lender.” This means the borrower may not qualify for certain financial products, such as credit cards and loans. Those with subprime credit who do qualify for these financial products may have to pay a higher annual percentage rate (APR), which means debts will end up costing the borrower more in the long run than if they had good credit.
The state with the largest percentage of subprime users is Mississippi, at a rate of 49.2 percent, while the state with the lowest percentage of subprime users is Minnesota, at a rate of 22.8 percent.
The report also found that millennials, aged 22 to 38, represented the largest group of subprime credit usersー37 percent of all subprime usersーnoting that important financial decisions are often made during these years.
Those with subprime or bad credit are often the targets of predatory lending, such as payday and title loans, since it’s difficult or impossible for them to qualify for traditional financial products. Predatory lending often leads borrowers into a cycle of debt that is difficult to pay down. Additionally, paying down payday loans doesn’t improve your credit the way paying down other loans does, since payday loan providers usually don’t report to the credit bureaus.