Subprime, Nearprime Borrowers Both Falling Further Behind on Monthly Payments and Lending Origination Slows in May, As Financial Institutions Exercise Caution

Today, VantageScore released CreditGauge, a monthly analysis that highlights the overall health of consumer credit in the United States. May's CreditGauge shows that May 2023 delinquency rates continue to rise year-over-year across all credit products and Days Past Due (DPD) categories.

KEY FINDINGS:

DELINQUENCIES RISE YEAR-OVER-YEAR: Delinquencies rose across all days past due categories on a year-over-year basis, jumping from 0.16% in May 2022 to 0.25% in May 2023 for 60 DPD payments. A similar trend occurred for 90 DPD which rose 0.07% to 0.10% year-over-year. Most lenders report a missed payment after payment is 30 days late to the national credit reporting agencies (NCRAs).

NEW LOAN ORIGINATION SLOWS: Following a brief increase in April, new loan originations slowed in May across all product categories and all VantageScore credit tiers. Month-over-month auto loan new account originations decreased the most (.21%), followed by credit card (.17%), personal loans (.09%) and mortgages (.01%). Lenders were more cautious when issuing new credit, while consumers remain challenged with higher interest rates that tend to increase the monthly costs of new loan obligations.

AUTO LOAN DELINQUENCIES HIGHEST AMONG LOAN PRODUCTS: At the product level, auto loan delinquencies remain highest in both the 30 and 60 DPD categories, with the 30-day delinquencies recording its largest year-over-year increase in 2023. Auto loan delinquencies are today near pre-pandemic levels (January 2020) for 30, 60 and 90 DPD categories.

SUBPRIME AND NEARPRIME WEAKEN: Among VantageScore borrower tiers, Subprime and Nearprime weakened, recording increases in both month-over-month and year-over-year delinquencies across all DPD categories. For Subprime, 60-day delinquencies rose a full percentage point year-over-year in May, from 2.8% to 3.8%, while Nearprime borrowers showed weakening credit across all categories. Year-over-year Prime and Superprime remain largely healthy. 

With student loan payments set to resume in August after a three-year pause, a recent VantageScore student loan analysis noted that between 34% to 76% of borrowers may miss their first required federal student loan payment, which could result in a decline in their credit score.

"The May VantageScore CreditGauge report indicates that an increasing number of consumers are struggling to make their monthly loan payments," said Susan Fahy, Executive Vice President and Chief Digital Officer at VantageScore. "With the expected restart of student loan payments, consumers will need to be extra vigilant in managing their finances to keep from falling further behind and potentially damaging their credit profiles."

To view the full CreditGauge report, visit the VantageScore website.