Why Lenders May Need To Rethink How They Evaluate Subprime Borrowers
By CU Today Staff —
NEW YORK—Subprime consumers are no longer a niche corner of the lending market but a persistent and increasingly important borrower segment that traditional credit scoring models may be failing to fully understand, according to new research from PYMNTS Intelligence.
According to the report, 17% of U.S. consumers identify as subprime, a figure PYMNTS said has remained within a relatively narrow range for 47 consecutive monthly survey waves dating back to March 2022. The findings argue the subprime population is not simply a temporary byproduct of economic stress, but rather a durable consumer segment that continues seeking access to credit even as many conventional lending products remain poorly aligned with their financial realities.
The report found 35% of subprime consumers hold no credit card or store card at all, compared with just 4% of super prime consumers. PYMNTS said one of the clearest distinctions separating subprime borrowers from the broader population is ongoing bill payment pressure, with 55% reporting they live paycheck to paycheck and struggle to pay monthly obligations.
PYMNTS said those financial pressures are increasingly revealing behavioral signals that may become more important in underwriting decisions than traditional bureau scores alone. Among subprime consumers receiving tax refunds, 67% described the funds as critical or very important to maintaining financial stability, while 36% said the largest share of those refunds went toward everyday bills and expenses rather than discretionary purchases.
The report also pointed to healthcare spending patterns and installment-product usage as indicators of how subprime consumers manage liquidity. Among subprime consumers ages 18 to 43, 23% reported delaying doctor visits because of cost and 14% said they had not filled prescriptions. PYMNTS found providers such as Klarna, Sezzle, FuturePay and Zip over-indexed with subprime consumers, suggesting some installment lenders may already be relying more heavily on cash-flow and repayment behaviors rather than conventional revolving credit metrics alone.
Originally reported by CU Today.