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Subprime Borrowers Shifting Away from Revolving Credit
Subprime cardholders are carrying fewer monthly balances, a shift that could pressure late-fee revenue at issuers and benefit payment platforms offering installment options.
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A growing share of subprime consumers are no longer carrying credit card balances from month to month, a shift in payment behavior with direct consequences for lenders and payment networks, according to a new report from PYMNTS Intelligence.
The report, which profiles the roughly 44 million U.S. adults, 17% of the population, with subprime credit scores, defines subprime as a score below 640, the standard threshold for most lenders. It found that fewer of them are regularly revolving debt. Instead, they are adapting their payment habits, using a mix of credit tools and turning to whatever option works best at the moment.
The data paints a picture of a group under consistent cash flow pressure. Fifty-five percent of subprime consumers live paycheck to paycheck with difficulty paying bills. Younger subprime consumers are more likely to delay medical care: 23% have put off a doctor's visit due to cost. Tax refunds play an outsized role, with 67% of subprime refund recipients calling that money critical or very important to their finances. The outsized importance of tax refunds suggests subprime spending patterns may be lumpy, with surges around refund season and retrenchment at other times.