In a murky and mysterious economic landscape, there can be
uncertainty and hesitation. In July’s Market Pulse webinar, we
discussed key takeaways to ensure you’re well-positioned to focus on
forward while building resilience - despite the unknowns.
Our contributors included Dr. Robert Westcott, President and
Founder of Keybridge, an economic policy firm in Washington, D.C.
Joining us from Equifax, Risk Advisor Maria Urtubey shared consumer
credit trends and insights, and Tom Aliff, Risk Advisor Leader,
moderated our panel discussion. We welcomed Dr. Rikard Bandebo, Chief
Product Officer at VantageScore, and Tommy Lee, Senior Director at
FICO, as our guest speakers who offered valuable insights around
enhancing account management.
Macroeconomic Observations and Updates
Dr. Robert Wescott shared an overview of the current
Looking at the labor market, we see a slowdown. When the
economy is slowing, we look for revisions in prior months. In the
current case, we see there were not as many jobs created in early
summer as originally posted. We see a softening in overall hiring as
businesses brace for presumed economic headwinds. Although inflation
is not out of control, it is still higher than average. Wescotte
expects another potential hike in interest rates to get ahead of a
A global economic slowdown is also potentially on the
horizon. Consumer spending was up from the pent-up demand of the
past few years, but the majority of those reserves have dried up.
When it comes to banks, we see less demand, tighter lending
practices, and higher interest rates on deposits. Revolving credit
debt has increased as households are using credit cards to fund
purchases. Although most believe they feel poorer than they were a
year ago. Furthermore, delinquencies are slightly higher,
specifically with auto loans and young borrowers.
Finally, with student loan repayment beginning in October,
another significant hit to consumer spending is set to take place.
We predict a slowing in non-essential and leisure spending.
Consumer Credit Insights and Trends
Equifax Risk Advisor Maria Urtubey shared a high-level
overview of the critical information that has just been released
from the previous few months. Highlights include:
Mortgage origination saw a 58% decrease since
same time of year in 2022; auto originations are up
8.5%, but also saw a 10% decrease in balances while
experiencing the lowest subprime share in over 10
Bankcard limit originations
up, but subprime share decline almost 3%; private label
limit originations are down, and subprime share
continues to decrease
private loan balances, as well as the number of new
loan originations, saw sharp decline; the subprime
Home equity revolving limit
and unit originations saw steep decline, yet subprime share
saw a small increase
Mortgage debt rests at over $12 trillion with
non-mortgage debt beginning to flatten
Revolving debt is at its highest level ever; non-revolving debt
increased for the second straight month
Subprime bankcard utilization is higher than during the
pandemic, but prime bankcards have been dropping over the last
Delinquencies across auto,
bankcard, private label, and mortgages have all decreased
Lenders can focus on forward and find hidden opportunities
by increasing the frequency of account reviews to quickly identify
Deeper Insights on Enhancing Account Management
“Consumers are not scores. Consumers can both migrate up and
down in their profile based on life circumstances. It's really
important to stay connected to that.” - Tom Aliff
Tom Aliff moderated an informative discussion between Dr.
Rikard Bandebo of VantageScore and Tommy Lee from FICO. An overview
of their commentary on consumer profiles and evolving credit
landscape fell into four categories: the current credit landscape,
how credit scores impact consumers, utilization insights, and
Regarding perspectives on credit scores and where they
currently stand, we need to turn our focus to the previous few
years. Although it was an oppressive time, it also allowed some to
pay down debt; therefore, credit scores increased. The economy was
infused with, and fueled by, stimulus.
Now, stimulus has ended, and lenders need to account for the
debt that had been ignored being called in. FICO scores have
increased since the start of the pandemic, but we have to think
about the entire credit ecosystem. How much income do consumers have
in collateral? What is their loan-to-value rate on their secured
products? What are the conditions in the economy in terms of things
like the unemployment rate or government stimulus?
So, in many instances, the credit report and the credit
scores are not the only considerations. Because of these factors,
we are starting to see, though repayment levels, credit scores are
changing over time.
How should risk managers stop thinking about credit scores
or utilizing them to prepare for different economic possibilities
going forward? Aggressive account reviews.
It is imperative to acknowledge credit scores, microscores,
and advantage scores as they are quite predictive metrics. However,
lenders must not only understand credit risk and their financial
underwriting models, but also think about understanding resilience in
their credit portfolios, having a more fine-tuned approach to both
underwriting as well as their calibration models. So, using all
available data, lenders need to understand different ways to pivot.
The winning strategy is based on what we think will happen going forward.
Monitoring unemployment, job openings, inflation, and many
other micro factors have the impact of pushing everybody's risk
score up or down. While keeping that information in mind, along with
focusing on delinquency rates from different vantage points, regular
account reviews allow lenders to consider additional, pertinent information.
While the credit file is very predictive, it does not tell
lenders everything. We know bank data is not the best source for the
study of factors, including income, how much of that income
consumers are spending each month, how that is changing over time,
and so forth Therefore, lenders are better off incorporating as much
information as possible - as frequently as possible.
Concerning drops in utilization, they can vary quite
significantly depending on the type. For instance, regarding student
loan delinquency by missing just one payment, there can be a
resulting negative score impact of 82 points. So, even if consumers
are not actually missing payments, the impact of one blip can become
We should also emphasize the impact of a delinquency is
highly dependent on the starting profile of the consumer. So, if you
have a 600-score consumer who misses a 30-day delinquency, but they
have so many other delinquencies on the credit report already, their
score might only drop 20 points. However, if you have a super-prime,
800-score consumer missing a payment, that could be a significantly
larger drop because they have no other form of delinquency on the
Student Loan Repayment
One of the hottest topics right now is the student loan
marketplace, and we want to help consumers be prepared for the
Generally speaking, the trends in default rates increased in
the last year or so. Since student loan borrowers, just like the
total population, are not all the same, lenders really must look at
all the data available. These student loans are going to be lower in
the payment hierarchy, therefore another thing to keep in mind is
the delinquency on student loans will likely not impact credit
scores in the first year. Ultimately, though, there are a lot of unknowns.
The greater concern is how student loan repayment is going
to impact the ability to make ends meet overall. Potential for
reduced spending, lowered repayment rates, and missed payments are
possible outcomes. These habits, as we have discussed, will impact
the overall economic climate for everyone.
The most important priority for lending teams is to closely
monitor their accounts on a frequent basis, as well as consider the
consumer as a whole. The importance of frequent account review
cannot be understated, and lenders should be checking the most
current credit scores available as they are the most predictive of
what is to come. Consumers with lower scores are more likely to have
large score changes month to month, so it is vital to conduct
account reviews early and often.
For more information on the latest Equifax Consumer Credit
Trends and to register for future Market Pulse events, click
here. If you missed our June 2023 Market Pulse webinar you can
view the slides here
or watch the recording here.