Experian spots ‘promising signs’ of consumer credit management

Experian’s latest analysis of the credit world showed what experts are calling “promising signs of responsible credit management,” which could benefit auto financing, too.

That assertion came among the key findings from Experian’s 11th annual State of Credit report, which examined how consumers are managing their credit histories against the backdrop of the COVID-19 pandemic.

Experian highlighted this year’s report provided an extended view into how consumers are managing and repaying their debts, showing most Americans are practicing responsible credit management by reducing utilization rates, credit card balances and late payments.

“Against the backdrop of the pandemic, we are seeing promising signs of responsible credit management, including lower credit card balances, decreased utilization rates and fewer missed payments — especially among younger consumers,” said Alex Lintner, group president Experian Consumer Information Services.

“Educating Americans about the factors included in their credit profile and how to manage these responsibly is of critical importance, especially on the road to economic recovery,” Linter continued in a news release.

When compared to 2019, Experian said, Americans are carrying fewer credit and retail cards and less credit card debt on average. Delinquency rates for 30-59 days, 60-89 days and 90-180 days past due all decreased year-over-year.

While retail spending, nonmortgage debt and mortgage debt increased, Experian pointed out that utilization rates — sometimes referred to as balance-to-limit ratios — decreased by 4% to 26% in 2020.

Analysts said these factors attributed to an average credit score of 688 — a six-point increase from the same period in 2019.

Positive results driven by younger borrowers

Experian explained the year-over-year increase in average credit scores can be attributed to younger consumers practicing responsible credit management.

While average utilization rates dropped for every generation, analysts discovered the most significant decreases were seen in Gen Z consumers who saw a 6% reduction in their use of available credit, followed by millennials, or Gen Y, who saw a 5% decrease year-over-year. 

While Gen Z and Gen Y are carrying more credit cards than they were in 2020, Experian reported their credit card balances decreased year-over-year.

Looking at 30-59 days, 60-89 days and 90-180 days past due delinquency rates showed Gen Z had fewer missed payments than all generations except the silent generation, according to Experian data.

Experts added lower utilization rates, less credit card debt and fewer missed payments fueled a 13-point increase in average credit scores for Gen Z and an 11-point increase for millennials.

“Credit scores are a reflection of the information included in your credit report,” said Rod Griffin, senior director consumer education and advocacy at Experian. “They are one piece of the puzzle. From buying a home to purchasing a new family car and much more, the types of purchases that are going to create meaningful change in consumers’ lives require a strong credit history.

“It is encouraging to see trends of responsible credit management for consumers of all ages,” Griffin went on to say.

Source: Experian