How Subprime Borrowers Are Using Credit to Climb Back Up

Subprime consumers tend to be stereotyped as impulse-driven credit risks who lack the planning skills to manage their personal finances.

But according to recent analysis from PYMNTS, that’s not as it appears. A quarter of subprime consumers use credit for discretionary spending to enhance credit scores, claims the May 2025 report. That is not irresponsibility, that’s strategy.

The report shows that consumers with credit scores under 620 are being deliberate in an environment that frequently excludes them.

Subprime consumers experience bank denial rates that are 2.3 times greater than super-prime applicants, and about 30% of subprime consumers are turned down for conventional credit cards. Mainstream finance’s message? “No, thanks.”

That rejection pushes many subprime consumers to other lending channels. As a group, they use payday or credit-builder loans, or BNPL at a considerably higher rate than other consumers. Take, for instance, the finding that 40% of subprime customers have used BNPL products, while only 27% of super-prime customers have done so.

Approximately 30% of subprime consumers are rejected for conventional credit cards.

They are more than two times as likely to resort to payday or credit-builder loans. But while these loans are easier to obtain, they tend to be expensive or do not report to credit bureaus, reducing their long-term utility.

The statistics reveal that it is not appetite, but rather availability, that is at issue. Subprime consumers are 3.6 times more likely than super-prime consumers to be interested in acquiring a new credit card.

They also want traditional lending products that go beyond credit cards, including consumer loans, home loans, automobile loans, and debt consolidation instruments. This isn’t about getting by — it’s about moving up.

Subprime financial institutions need to hear this wake-up call. Consumers aren’t avoiding credit building best practices; they’re hungry for alternatives that actually work. Denying them not only slows them down — it drives them toward more expensive, or even less effective, alternatives.

A consumer who is denied at one bank may end up in a cycle of payday lending, not by choice, but because it’s currently the only door of entry left to them. That type of borrowing isn’t good for anybody.

That is where secured-card and other starter product offerings come in. They pose less risk to lenders while affording subprime consumers an opportunity to establish responsible behavior.

And if combined with sound reporting and clear terms, they can provide an opportunity to fill in the gap left by credit invisibility while still achieving full inclusion. That is accomplished by ensuring that payment history is reported to all three credit bureaus and that terms and fees remain clear to consumers from day one.

More lenders can also gain by having graduated products — accounts that change based on customer behavior. If you’ve paid six months of bills on time, you may be able to get better terms or an unsecured product. That encourages good behavior and keeps customers in the regular system.

Growth-oriented lenders may be wise to consider this underbanked segment as an investable opportunity in and of itself. Demand exists, as the PYMNTS study suggests, but supply that is appropriate for the moment is not yet present.

By ignoring these consumers or putting them into risk-only segments, the industry is overlooking opportunity, revenue, and influence. The borrowers are prepared. The products need to catch up.