How Lenders Can Use Data to Reveal Credit and Financial Stresses

Macroeconomic indicators like increasing delinquency rates and ballooning debt point to a nation of prospective borrowers under financial pressure and with shrinking credit. But those numbers don’t tell the whole story -- lenders need more targeted consumer data to drive daily decision making.

In episode 33 of the Market Pulse podcast, our panel of Equifax experts discussed how data can uncover exactly where consumer stresses lie, and how lenders can best use these insights. The Risk Advisory panel included David Sojka, Jesse Hardin, Maria Urtubey, Thomas Aliff and myself as host.

Listen to the podcast now or keep reading for some episode insights.

Economists and Consumers Have Differing Views on the Economy

There’s a widening gulf in how economists and consumers perceive the economy, according to Sojka. While economists predict a stable future, consumers -- especially those living paycheck to paycheck -- continue to grapple with real-world financial challenges. Sojka mentioned the impact of unforeseen events, such as the COVID-19 pandemic, which left many individuals vulnerable due to job loss and financial instability.

But regardless of where we are at a macro level, individual consumers are in their own private recessions or private periods of growth. And when it comes down to it, lenders are making decisions on a day-to-day basis at that consumer level – not the macro statistics.

During the podcast episode, the panel discussed various stresses that are occurring among consumers right now.

Consumer Debt Levels Rise

Some consumer debt levels are staggering. In particular, Gen X is grappling with high debt-to-income ratios. Sojka pointed out that 33% of consumers carry debt levels exceeding $250,000, with Gen X facing an average debt load equivalent to 397% of their disposable income. Moreover, millennials and bridge millennials attempt more transactions without sufficient funds, indicating a growing trend of financial stress.

Savings Rates Decrease

There has also been a drop in personal savings rates. During the peak of the pandemic, the personal savings rate was as high as 32%. However, it has fallen to a mere 3.9% as of August. This decline in savings puts consumers in a precarious position, making them more vulnerable to financial shocks.

The Number of Credit “Revolvers” Surpass Consumers Who Pay Their Balances

Urtubey discussed increasing credit card balances and the rising number of consumers who carry balances from month to month, known as "revolvers." High credit card debt has reached one trillion dollars, and revolvers are now surpassing transactors—those who pay their balances in full every month. This shift reflects a growing financial challenge for many consumers.

Analyzing the Data to Better Understand Consumers

In conclusion, the panel discussed data that could be leveraged to understand what a consumer is experiencing in their life to put them into the right loan at the right time. For example, I looked at data on low-income consumers to determine if they are impacted by the same levels of stress. What's interesting is that even within those similar segments, we can see big differences in terms of who's impacted by different economic events. Even within that lowest of the low-income bands, we can still make distinctions by things like the ratio of disposable income to spending.

Be sure to check out other episodes of the Market Pulse podcast or register for an upcoming Market Pulse webinar.