Study Finds 35% of Subprime Consumers Have No Credit Cards

They are 44 million strong and make up 17% of U.S. consumers. They are the people with subprime credit scores, and many have no credit cards or store cards, according to a report by PYMNTS Intelligence.

Thirty-five percent of subprime consumers have no credit cards or store cards. Besides getting by with no credit, many subprime consumers struggle to save.  Fifty-five percent of subprime consumers live paycheck to paycheck and have a tough time paying bills, according to PYMNTS Intelligence.

Subprime consumers between ages 18 and 43 heavily favor buy now, pay later (BNPL) providers and use these services to pay for their healthcare.

They also heavily rely on federal tax refunds. Sixty-seven percent of subprime refund recipients said their tax refund was critical or very important to their finances. Thirty-six percent of subprime consumers put the biggest share of their tax refunds toward everyday expenses and bills. 

Underwriting Geared Toward Subprime Consumers

Traditional underwriting uses credit bureau data and looks at a consumer’s revolving credit utilization and payment history. But this may not be the best way to evaluate the credit worthiness of a subprime consumer. 

A better match for the subprime population is using cash flow behavior and spending priorities. These items would glean insight into a subprime consumer’s capacity to make payments and as well as their stability, according to PYMNTS Intelligence data.

Healthcare and Subprime Consumers

Here is a closer look at how subprime consumers manage healthcare spending. They sometimes skip medical care altogether.

Twenty-three percent of subprime consumers from the ages of 18 to 43 delayed a doctor’s visit because of the cost. And 14% of those subprime consumers did not fill a prescription because of cost.

To cover medical costs, subprime consumers borrow money from family members. They also use BNPL installments to pay for medical expenses. 

Subprime consumers gravitate toward BNPL providers — such as Klarna, Sezzle, FuturePay, and Zip — that accept borrowers with thin credit files. They may use store cards, borrow from family, and use careful cash flow management such as the handling of tax refunds when managing their finances.

How to Stop the Paycheck to Paycheck Cycle

Here are some steps for breaking free from living paycheck to paycheck. Begin by comparing monthly income to monthly expenses. Is there enough money to pay monthly bills with money left over for food and other expenses? 

Coming up short? If so, there are two key strategies to try, cutting expenses and increasing income. Do everything to slash expenses to the most essential then look for ways to increase income. Taking on more hours at work or picking up a side hustle are two ways to increase monthly cash flow. 

Once income is greater than expenses, set aside money for emergency savings. The goal is to build up three to six months of living expenses so if an emergency happens, the money will be there to pay for it. 

Another way to break the paycheck to paycheck cycle is to pay off credit card debt. This will free up more money for emergency savings. Federal Reserve survey data show 37% of adults would need to borrow, sell something, use unpaid credit or simply could not cover a $400 emergency expense.

The Bottom Line 

Subprime consumers make up 17% of the U.S. population, and about one-third (35%) of them do not carry credit cards. Fifty-five percent of subprime consumers live paycheck to paycheck and find it difficult to pay their bills. 

Some young subprime consumers use BNPL or installment products to pay for healthcare. They also borrow money from family members to pay for medical expenses.

Subprime consumers rely on federal tax refunds with 36% percent of subprime consumers putting the largest share of their tax refunds toward everyday bills and expenses.