Fewer Subprime Consumers Across U.S. in 2021

Nearly a Third of U.S. Consumers Have Subprime Credit

Subprime is a term used by lenders and others in the financial space to describe credit scores that fall below a certain threshold. This threshold isn't universal, and can vary based on the organization that's making the distinction. For the purposes of this analysis, we considered all consumers with scores of less than 670—or those in the "poor" and "fair" FICO^® Score^☉ ranges ranges—to be subprime.

Nearly 1 in 3 U.S. consumers—30% of those included in our analysis—have a credit score in the subprime range, according to Experian data from Q1 2021. Though this represents a substantial portion of the population, 2021's numbers show a healthy improvement from the prior year, when 34% of the nation had a score under 670.

With the population divided into two credit groups—subprime and prime—a reduction in one means an increase in the other. Accordingly, prime consumers saw their base grow by 6%.

Subprime Consumers Reduced Debt, Utilization in Past Year

Since Q1 2020, the population of subprime consumers has not only gotten smaller, but the credit usage characteristics of subprime consumers has improved. The average FICO^® Score for this group increased by eight points in Q1 2020.

Subprime consumers also improved several of their core credit characteristics, such as credit card utilization, which decreased by 6 percentage points from 61% to 55% in Q1 2020. And while their average utilization ratio is still quite high, this reduction may have been the incremental improvement some of these consumers needed to qualify as a prime scoreholder.

Subprime Consumers Held Back by Delinquencies, Derogatory Marks

There are many factors that impact consumer credit scores, and derogatory marks can be the most devastating. Things like late payments, bankruptcies and collection accounts can severely affect a consumer's credit and remain in their credit reports for up to seven years.

Between prime and subprime consumers, there is a clear divide when it comes to derogatory marks and their severity. Subprime consumers show a higher frequency of late and missed payments—with the ratio of their accounts 30 or more days past due (DPD) reaching 18%, according to Experian data from Q1 2021. Comparatively, only 0.2% of prime consumers' accounts were 30 or more DPD.

Subprime Populations Reduced Across All States

In line with the reduction in the subprime population at the national level, the number of subprime consumers decreased in each state. Some states—such as Maryland and Oregon—saw reductions of 15%, while most others saw smaller declines of anywhere from 7% to 14%, according to Experian data from Q1 2021.

Millennials Make Up the Largest Number of Subprime Consumers

Debt and credit scores tend to vary when comparing members of different generations, and this trend is no different when looking at prime and subprime populations. Overall, millennials represent the highest ratio of subprime consumers of any generation. In 2021, 40% of millennials had a score in the subprime range, according to Experian data. The subprime millennial population has seen an 11% reduction since Q1 2020.

The silent generation, which has the highest average credit scores, also has the lowest ratio of subprime consumers. Members of the silent generation benefit from the duration of time they've been using credit, which members of younger generations cannot replicate.

Borrowing Opportunities Expand as Subprime Population Shrinks

An increase in the number of U.S. consumers moving from the subprime to prime group is a positive phenomenon. Not only does it show that consumers are improving their scores, but it shows they are improving them enough to move to higher score tiers.

Some lending decisions are based on which score group an applicant is in, and those in the subprime category may face challenges in being approved and face higher costs in borrowing. As these consumers transition into the prime tier, it's possible they're able to expand their borrowing opportunities.

In addition to more consumers moving into the prime range, the data shows that consumers in the subprime group are also improving their underlying credit factors. There will always be newcomers to the credit space who start out with lower scores, and those who see their credit scores decrease for one reason or another, but this movement from subprime to prime is generally promising. This trend could lead to expanded borrowing opportunities for a larger growing portion of Americans.

Considering Credit Changes During the COVID-19 Pandemic

Though the trends in subprime credit have been promising over the past year, it's important to remember this data is a snapshot taken during a turbulent period. Average credit scores rose across the U.S. in 2020, fueled in large part by a shift in consumer spending and saving and changes to how lenders worked with borrowers during the COVID-19 pandemic.

Since the onset of the pandemic, certain COVID-19 relief programs have ended or will before long, which could mean that consumer finances might change markedly in the months to come. As time goes on and consumers continue to manage the impacts of the COVID-19 pandemic, Experian will continue to monitor the data and provide updates as they become available.