By John Flynn, CEO, Open Lending
I recently ran across an article from The Center for the New Middle Class, Understanding the Drivers of Nonprime Credit, and it’s been percolating around in my brain. It maintains that the New Middle Class is those with credit scores below 700. More and more Americans are falling into this category as the cost of everyday living increases while wages remain relatively stagnant.
The average credit score of a US consumer is 695, an all-time high, according to ValuePenguin, and most fall between 660 and 720. If you look at the figures by age groups, older Americans are carrying that average higher, but as credit union leaders, we know we need to replenish our borrowers with younger borrowers. However, if you look at the numbers for the under 40 crowd, the largest categories have credit scores of less than 621.
Credit unions should reach out to these members and help them along their journey to financial stability. The youngest group, younger than 30, likely have little to no credit, which accounts for their lower scores, but even among the 40- to 49-year olds, the largest segment is credit-challenged. Educating the inexperienced and helping to rehabilitate the credit of those who are trying to do better is what credit unions were created to do.
The higher income members have, the higher their credit scores, averaging 775 for upper income versus 664 for the lower income consumers. That said, geography, industry they work in, and many other factors can have an impact on credit score. For example, Minnesota is the state with the highest credit scores, averaging 709, while Louisiana is dead last at an average of 650.
And, of course the portfolio balance affects your credit union’s lending strategies as well, whether you’re more invested in real estate, or as many credit unions are, auto loans. When it comes to new and used, indirect or direct car loans, Open Lending’s Lenders Protection is the answer to saying ‘yes’ to more loans across the credit score spectrum.
We use alternative data from multiple sources to determine whether that borrower with a 620-credit score is a good risk or not. We’re nearly 100% accurate on our default rate projections. And if a loan does go bad, Lenders Protection backs you up with an 80% guarantee. Here’s how it works:
Open Lending looks out for your interests before you even receive the loan application, and then covers your interests on the back-end if a loan doesn’t quite work out.