The number of Americans with subprime credit scores – generally considered scores below 620 – has been shrinking across the country, but the trend is playing out differently throughout the nation’s largest metro areas.
Of the 25 largest U.S. metro areas, 24 saw decreases in the number of subprime borrowers over last year, a welcome change during a time when lending standards have tightened across the board. Throughout the nation, the total number of consumers with credit scores below 620 fell 2.1 percent, or by about 1 million consumers, in the third quarter of 2012 versus the third quarter of 2011.
“We are seeing a trend of consumers being careful and disciplined about their use of existing credit while also being cautious about using new accounts they have opened,” said Trey Loughran, president of the personal solutions division at Equifax.
Though the average credit score has remained relatively stable throughout the recession, the number of subprime consumers has grown over the past five years, as Americans lost their jobs or homes and struggled to make payments on time, if at all.
But the slow-moving recovery, including improvements in the job market, has helped many people improve their credit history and inch past the 620 mark.
The 620 score is often considered the benchmark score for subprime consumers, though typically lenders and banks have their own standards. Someone with a credit score below 620 likely will have a harder time securing credit, particularly a mortgage, and may pay a higher interest rate, if they can secure a loan.
Chicago, despite its sputtering housing market, has seen the largest decline in consumers with credit scores below 620. The Chicago-Gary-Kenosha metro area saw a 9 percent reduction in subprime consumers, dropping from nearly 1.7 million people in the third quarter of 2011 to a little more than 1.5 million in the third quarter of 2012.
Houston, on the other hand, was the only city that saw its population of subprime consumers increase—by just .6 percent.
The credit score differences between geographical areas can be attributed to a number of factors, including employment, population shifts and demographic changes. In Chicago, the unemployment rate declined 1.5 percentage points to 8.8 percent—the fifth best improvement in unemployment among the largest 25 metro areas. Overall population also declined in the area, and the improvement in credit scores might be attributable in part to migration of unemployed people out of the area. The Houston area, however, saw a population increase.
Behind Chicago, California saw large decreases in the number of subprime borrowers. The San Francisco and Oakland area saw a 6.4 percent decrease of subprime consumers, while Sacramento saw a 6.2 percent decrease, followed by San Diego and Los Angeles which both had 5.3 percent decreases.
There have also been significant improvements in other early housing-bust markets such as Las Vegas, Phoenix and Miami, where people’s credit scores are starting to recover after foreclosures.
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