18.7 million U.S. consumers in financial hardship programs
CHICAGO, Oct 07, 2021 (GLOBE NEWSWIRE) – Despite financial challenges brought on by the COVID-19 pandemic, a new study from TransUnion (NYSE: TRU) found that 18.7 million U.S. consumers who participated in a Financial Hardship program experienced an increase in their VantageScore 4.0 credit risk scores in 2020. This represented 58% of the total troubled population (excluding student loans).
Yet, the credit risk of these people in hardship programs often changed depending on when they left a hardship status. Financial hardship is defined by factors such as deferred payment and forbearance programs for credit products such as auto loans, credit cards, mortgages, and personal loans.
“COVID-19 has presented enormous financial challenges to consumers and businesses, especially in the first six months of the pandemic,” said Paul Siegfried, senior vice president and head of banking and cards at TransUnion. “Our research shows that while many consumers have been negatively impacted by the pandemic, the majority have experienced an increase in their credit scores.”
However, consumers in financial difficulty present different risks depending on whether they left or remained in financial difficulty in the third quarter of 2020. TransUnion analyzed 1.3 million consumers in difficulty whose score improved in 2020 to assess their performance on new bank card issues.
The beginning of the month on the performance of books on new bank cards for consumers who were in difficult programs outperformed non-difficult consumers. Leavers in difficulty had a delinquency rate over 30 days of 4.8% six months after issuing a new bank card in the fourth quarter of 2020. The remaining in difficulty had a delinquency rate of 4. 9% while consumers not in difficulty had a delinquency rate of 5.1%.
The study also found that struggling consumers of each level of credit risk were more likely to create new bank cards after their score improved compared to people who had no struggles.
“We took the study further and divided struggling consumers based on their current struggling status – those who went out and those who stayed. We have found that troubled leavers exhibit higher credit utilization behaviors because they are more likely to have mortgages and have higher utilization, ”said Siegfried.
Assessing Risks in a New Complex Lending Environment
Such nuances between financially troubled leavers, leftovers, and various risk groups often pose a challenge to lenders when offering new loans. The study found that applying alternative credit risk scores can help lenders better assess borrowers.
In particular, the study found that TransUnion’s CreditVision Acute Relief Risk Score for Non-Premiums and CreditVision Prepayment Default Score for Prime and Higher Credit Levels may better separate low-end consumers. risk and high risk. A further separation was evident by applying a segmentation of leavers and survivors of hardship.
“A lot of people continue to feel anxious about their finances. An important thing to keep in mind is that regular and on-time payments are one of the most important factors in your credit health. If a consumer can’t make payments, they should talk to their lenders to see if they are offering help, ”said Margaret Poe, consumer credit education manager at TransUnion.
People interested in learning how to read their credit report can Click here. More information on the study is available here.
About TransUnion (NYSE: TRU)
TransUnion is a global information and analysis company that makes trust in the modern economy possible. To do this, we provide a complete picture of each person so that they can be reliably and securely represented in the market. As a result, businesses and consumers can transact with confidence and achieve great things. We call it Information for Good.®
With a leading presence in more than 30 countries on five continents, TransUnion provides solutions that help create business opportunities, great experiences and personal empowerment for hundreds of millions of people.