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Survey: Majority of Americans Have Subprime Credit Scores

Despite signs showing that the U.S. economy is improving, 56 percent of Americans are still struggling with sub-prime credit that may have resulted from the recession, according to new findings by the Corporation for Enterprise Development (CFED) that were reported Jan. 29 in The Washington Post.

Having a sub-prime credit rating, which CFED identifies as having a TransUnion-supported TransRisk score of below 700 out of a possible 900, means that people are locked out of the most affordable lending markets, resulting in either higher interest rates or the need to seek out payday loans, car-title loans, or other “fringe, high-cost financial products” that can cause someone to get trapped in a “cycle of debt” according to CFED director of applied research Kasey Wiedrich. Wiedrich also mentions that low credit scores can be the result of late and delinquent payments made during tougher financial times, which can last up to seven years on a credit score. Bankruptcy filings can linger for up to 10 years.

Yet even though the percentage of Americans may seem high, it might not be as bad as the statistic would suggest, according to Wiedrich. Some people’s credit scores have improved since the recession ended due to recent payments being made on-time each month, helping to erase some of the more ugly features of a credit score, as well as delinquent loans being officially cleared up without being immediately reflected in the score.

Another consideration is that the TransRisk score isn’t the most common metric used among banking institutions to determine creditworthiness. Aside from other ratings agencies like Equifax, there are an increasing number of companies that can determine creditworthiness using data algorithms and social media interactions like HelloSoda, Lenddo, and Earnest. There are also simple ways to improve one’s credit score, according to Credit.com’s Gerri Detweiler, such as focusing on current payments, limiting the number of credit cards one opens to reduce the amount of score-damaging credit inquiries, and keeping the balances under 30 percent of the credit limit — 10 percent if possible — per billing period.

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