Writer: Lucy Lazarony
Editor: Lillian Guevara-Castro
Reviewer: Adam West
Key Takeaways
A new survey from Snap Finance reveals 58% of credit-challenged consumers say their financial situation is unstable, 91% say they’re living paycheck to paycheck, and 65% have $500 or less in savings.
Who are these credit-challenged consumers? They have credit scores below 670, are more diverse, slightly older, much more likely to be renters, and have significantly less education and income, according to Snap Finance.
Credit-challenged consumers are struggling financially. They have skipped or delayed a payment or bill, borrowed money from family and friends, delayed auto repairs, applied for government assistance, and delayed dental and medical care, according to the survey from Snap Finance.
These credit-challenged consumers are much less likely to have a savings account, credit cards, retirement plans, and investment accounts. And they are more likely to use a non-traditional bank as their primary bank.
Savings and Debt Characteristics
Many credit-challenged consumers have very little money saved. According to Snap Finance, 65% of credit-challenged consumers have $500 or less in savings. Many with credit cards are carrying balances from month to month. Fifty percent of credit-challenged consumers with credit cards never paid their credit card balances in full in the past year.
Credit-challenged consumers are dealing with debt. These consumers are much more likely to have credit card debt, medical debt, payday loans, student loans and personal loans.
Many credit-challenged consumers aren’t able to pay monthly bills. Only 35% of credit-challenged consumers pay all bills on time in a month. But they are looking for help.They rely on financial management apps and advice from family and friends.
Widespread challenges
Credit-challenged consumers aren’t the only ones feeling financial pressure.
“What we’ve really seen across the last several studies that we’ve done is that the financial pressure is really widespread,” Rob Brown, Senior Vice President of Research & Insights at Snap Finance, told us. “So whether you have good or bad credit, good or bad income, you’re definitely feeling the pinch in this economy.”
And the 91% of credit-challenged consumers who live paycheck to paycheck may be feeling the pressure the most. Brown called that statistic “jarring” but again emphasized that people with higher income and higher credit scores are feeling pressure as well, especially in the area of employment.
“Job security is not just impacting the blue collar workers, but white collar jobs as well,” Brown told us. “So I think that’s really kind of spiked over the last year or so where it’s become more of a concern.”
He pointed out that consumers with higher incomes and higher credit scores could be in “a bad situation pretty quickly” if they lose their jobs.
Some Advice for Lenders
Brown encourages lenders to look at a consumer’s entire financial picture when offering products.
“It’s understanding their full financial picture, understanding that things can change pretty quickly in this environment, obviously with the job market, but also inflation and other factors that are going on,” Brown told us. “So you just got to keep that in mind when you’re looking at these consumers.”
Brown said all consumers, not just those with credit challenges, are concerned with cash flow.
“It’s not just the subprime consumer that cares about their pay cycle, making sure they’re managing that cash flow. It’s really all consumers at this point,” Brown explained to us.
Reaching Consumers
Brown advises lenders to make sure that they’re building their products around the needs of consumers, such as offering loans aligned with when a consumer gets paid.
“Things like being able to help them manage their cash flow is really becoming a kind of table stakes in lending,” Brown told us.
He also urges lenders to get to know their customers.
“Keep a pulse on the needs of the people you are trying to serve,” Brown told us. “And make sure you have flexibility within the products that you bring to those consumers to adjust, especially in times like this.”
The Bottom Line
A survey from Snap Finances sheds a light on the financial characteristics of credit-challenged consumers who have credit scores below 670. These consumers delay or skip a payment or bill, borrow money from family and friends, delay auto repairs, apply for government assistance, and delay dental and medical care.
Credit-challenged consumers are less likely to have savings accounts, credit cards, retirement plans, and investment accounts. They are more likely to use a non-traditional bank for their banking needs.
