As economy continues to recover, consumers' credit scores take longer to catch up
From December 2007 to June 2009 the U.S. experienced one of the most severe global economic downturns in history. Since the 18 months of the Great Recession, businesses have taken part in a recovery and returned to slow, but sustained, growth. Rising employment, increased consumer spending and improving business indicators have all presented positive signs for a return to a stronger position in a wide range of sectors.
However, the years-long recovery has been sluggish, and its impact has been felt unevenly across different sectors of the economy. For business owners who extend credit to consumers, such as furniture retailers or car dealerships, it's important to understand that many people's credit scores may still be lagging behind the overall trends. By taking into account the continuing impact of the Great Recession and the alternative means available for measuring creditworthiness, these companies can expand their customer base and continue to grow.
Why credit scores are slow to bounce back
"Many people have not seen the recovery reach their FICO scores."
According to the Wall Street Journal, the average credit score in the U.S. reached a record high in spring 2017. Nonetheless, many people have not seen this trend reach their own FICO scores, and it's vital for businesses to realize how financial situations have changed from before the recession. The types of debt individuals and families are taking on have shifted away from home mortgages and toward student, credit card and auto loans.
Meanwhile, many families do not take take part in the financial services that are essential to building a good credit history. As of 2015, the Federal Deposit Insurance Corporation reported there were 9 million households without bank accounts and 24 million considered underbanked. Judging the risk in extending credit to these potential customers can be difficult.
How alternative credit can help
Alternative credit reports provide a new perspective on the financial situations of households. This approach is especially useful when considering financing for people still working their way back from the recession or who have made little or no use of banks and credit cards. Businesses can gain a sense for whether to offer credit to an individual by looking at indicators like any history of short-term loans or regular payments for rent and utilities.
The Great Recession sent shockwaves through the U.S. economy, and numerous consumers are still feeling the aftereffects due to low credit scores. Alternative credit reports from PRBC Mainstreet provide businesses with the information they need to make smart calls in working with these customers and boost long-term growth.