According to a recent report by VantageScore, consumer credit showed signs of improvement in March as borrowers demonstrated timely payment habits and reduced their debt balances.
While the rise in prices and interest rates resulted in higher delinquency rates compared to the previous year across all loan types, the report indicated a slight improvement in missed payment rates from February to March. Specifically, the delinquency rate for auto loans decreased to 1.65% in March from 2.1% in the previous month.
Furthermore, consumer credit scores experienced a positive trend, with an average increase of 4.5 points compared to the previous year, reaching an average score of 701. Additionally, the percentage of consumers classified in the subprime credit tier decreased from 20.4% to 18.1% over the same period.
The report attributed the increase in average credit scores to the exclusion of medical debt from VantageScore models and consumers utilizing tax refunds to repay their debts.
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Please note that the mention of Credible and car insurance comparison is provided for informational purposes only and does not pertain to the original content of the report.
Improving Credit Amidst Stagnant Loan Volumes
The recent improvement in consumer credit occurred amidst the challenges posed by high inflation and the collapse of prominent financial institutions such as Silicon Valley Bank (SBV) and Signature Bank. These events were expected to lead to tighter credit conditions for households and businesses.
In line with these expectations, March witnessed a decline in new account activity across all sectors, with personal loans experiencing the most significant drop, both on a monthly and annual basis, according to the report.
Comparing to the previous year, Gen Z showed the most notable decline in personal loan originations, with a decrease of 2.6%. Additionally, mortgage lending also declined compared to the previous year, suggesting a sluggish start to the spring home-buying season.
“Year-over-year, new account activity continued to decline across all loan products compared to March 2022, indicating a potential reassessment of credit requirements by lenders and increased consumer caution regarding taking on additional debt,” stated VantageScore.
For individuals interested in obtaining a personal loan, utilizing an online marketplace to compare multiple options simultaneously could be beneficial. By visiting Credible, you can explore personalized interest rates without any impact on your credit score.
Please note that the mention of Credible and personal loan comparison is provided for informational purposes only and does not pertain to the original content of the report.
Decrease in Credit Card Balances Observed in March
The combination of rising prices, increasing interest rates, and consumer spending led to a notable increase in U.S. credit card debt, reaching $986 billion in the fourth quarter of 2022. This represented a rise of over $60 billion in the three months leading up to December, as reported by the Federal Reserve Bank of New York.
On an annual basis, overall credit card balances showed a 5.7% increase, reaching an average of $5,527, according to VantageScore. However, on a monthly basis, the average credit card balance slightly decreased to $5,734, as consumers utilized their tax refunds to alleviate some of their debt.
As of March 21, the Internal Revenue Service had issued over 85 million tax refunds, with an average refund amount of $2,753. This figure represented a decline of nearly 9% compared to the average tax refund of $3,012 observed last year.
Lowering credit card balances is an effective strategy for improving one’s credit score. The total amount of credit utilized, known as the credit utilization ratio, contributes 30% to your overall credit score.
For individuals struggling to repay credit card debt, exploring the option of obtaining a personal loan at a lower interest rate could be beneficial. Credible offers a platform to compare various lender options in one place, without impacting your credit score.
Please note that the mention of Credible and personal loans is provided for informational purposes only and does not pertain to the original content of the report.