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More Consumers Improving out of Subprime Credit Scores

Written by Equifax Experts on January 31, 2013 in Credit  |   7 comments

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…

subprime credit score

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.

7 comments

  1. Joanna-Caruso Nason says:

    I just can’t believe that a 688 credit score and a 697 score and the last score is in the ballpark of the 2 my Amex card cut my credit after 5 years of never a late payment & making at least $400 on all my accounts if not more. I am appalled by this & will discuss this with them & they don’t reinstate my credit to where it was they can have their overpriced cards. Yes I have some debt. Yes I have used my cards to supply a new business but I am being responsible too. I make really good money own my card outright etc. don’t they look at my payment history with them or am I just a number they receive from you?? It’s very unfair how they judge you & not look at the big picture I am truly upset over this & if my loyalty goes unnoticed then they can have all my cards back & I will stay with my loyal creditors who have not cut my credit lines. It’s easy because this debt is temporary but my loyalty is forever

    • EFX Moderator, EM says:

      Joanna-Caruso Nason, Lenders can sometimes do routine checks on your credit file and they can make decisions about your account then. You’re right though. A history of on-time payments is very important. It makes up 35% of your credit score and should have an impact on the lender. I hope talking with them resolves this issue for you. Please let us know how it goes, and thanks for posting.

  2. Shannon Emery says:

    If I have credit from 2005 or 2006 shouldn’t it be taken off my creit report now? It’s 2013 and that would between 7-8 years? I think that i also have some from 2004! Please help me out

    • Michele says:

      I also have negative items from 2006 and prior showing on my credit report. Is it possible to get this stuff removed and if so how? Please help, thank you!

      • EFX Moderator, EM says:

        Shannon & Michele, great question. Late payments and accounts not paid as agreed generally remain on your credit file for seven years from the date the account first became past due, leading to the current not-paid status. It’s important to note that accounts with current statuses, such as R1 (revolving debt) and I1 (installment debt), that reflect previously late payment history will remain on the credit file for up to ten years from the date of the last activity–only the late payment history is removed after seven years. Click here for more information on how long information stays on your credit report.

        Your credit file reports information given to the credit reporting agencies by the lenders. If you feel the items are incorrect in any way, you can file a dispute with each of the credit reporting agencies. It’s important that your credit file contain accurate information.

        Thanks for posting.

  3. Gary D says:

    I have paid off a ton of old debt, and have current ontime payments on my “newer” accounts. I have been working diligently to improve my credit and credit worthiness, however my credit score isn’t improving. How long after paying off old debt and making ontime payments will it take for my credit score to improve?

  4. Greg Pierce says:

    Do you have data on the number of people who are subprime going further back that 2011?


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