Latest news with #creditScores
Yahoo
3 days ago
- Business
- Yahoo
How American consumers are feeling the squeeze, in 4 charts
The lingering effects of high inflation coupled with high interest rates have made it harder in recent years for many Americans to get ahead financially. The hits just keep coming. A raft of policy moves from the Trump administration, including particularly steep tariffs that could cause prices to rise, and the whipsaw approach being taken, have stoked uncertainty and driven down sentiment to some of the lowest levels on record. That combination of higher prices, uncertainty and pessimism can be outright noxious as pullbacks in consumer and business spending can have cascading negative effects on the labor market and the broader economy. The consumers who power the US economy with their spending have been resilient to date — but they're being increasingly spread thin. Debt loads are climbing, as are defaults, and indicators of consumer strain are flashing red: For example, an increasing number of people are paying for their groceries in installments. Among those feeling the biggest squeeze are student loan borrowers who have been mired in confusion since the pandemic and amid two presidential administrations' opposing desires for those outstanding balances. The prospects of sharply reduced monthly payments and, especially, debt forgiveness have faded; instead, those who have fallen behind on payments not only are seeing their credit scores tank as a result, but they also risk having their wages garnished by the government. Here's a quick look at how household finances are becoming increasingly frayed: The Covid-19 pandemic upended the US economy — but in the process, some Americans were able to swiftly pay down their debt and sock away money in savings. Stimulus checks, payment pauses (on student loans and rents, in some cases), cutbacks in travel and other discretionary spending, as well as a $430 billion 'refinancing boom' helped give Americans plenty of dry powder and a leg up on their debts. The shored-up savings helped to power a post-pandemic recovery, and credit card balances shot up accordingly. The record-setting balances, on their own, weren't necessarily a troublesome indicator. Credit card use rises as the population grows, as more people shop online, and as the economy and wage gains remain strong. However, the post-pandemic recovery included a bout of decades-high inflation that the Federal Reserve tried to combat with decades-high interest rates. Where the rubber meets the road is how people were managing those rising and costly debts. By the end of last year, Americans were having greater difficulty in managing rising debt and, in some cases, hadn't been that overextended since the aftermath of the Great Recession. The share of households becoming seriously delinquent on their auto loans and credit cards hit 14-year highs. Moreover, at the start of this year, it was highly expected that student loan delinquencies would worsen. The 3.5-year payment pause ended in September 2023; however, an additional provision under the Biden administration provided a one-year 'on-ramp' where borrowers were shielded from the negative effects of a missed payment. That grace period ended September 30, 2024, and missed payments started hitting credit reports. Student loan delinquencies jumped to 7.74% from 1% following the ending of a pandemic-era pause of reporting past-due loans on credit reports, according to the Federal Reserve Bank of New York's first-quarter Household Debt and Credit Report. 'Adding student loans back into the mix certainly looks like it was a bridge too far for a lot of people, when it comes to their ability to pay the bills down,' Matt Schulz, chief credit analyst at LendingTree, said in a recent interview with CNN. And when the loans land into the serious delinquency territory (when they're late by 90 days or more), that's a major knock on people's ability to achieve other goals: Defaulted borrowers with credit scores above 620 saw average negative score changes north of 140 points, and those with scores north of 720 saw drops of 177 points on average, New York Fed research showed. In addition to the credit score impacts, those who have defaulted on their federal student loans will likely see their wages garnished by the Department of Education. 'The money that has to go to student loan payments now is money that can't go to paying off credit card debt or building an emergency fund or working toward other financial goals that build a stable foundation,' Schulz said. Buy Now, Pay Later installment plans have become more widely available and adoption rates have increased as people of all ages — but especially younger adults — have grown more comfortable incorporating them into their shopping habits. At their best, Buy Now, Pay Later loans can serve as an alternative to credit cards and are used by consumers who are seeking more flexible payment options, who want to overcome a tight financial spot, or who are looking to smooth out some bigger transactions to better meet their budgets. But it's the 'at their worst' part where there's greater cause for concern. Buy Now, Pay Later comes with such ease that people can quickly spend well beyond their means — especially if they start stacking multiple installment loans at the same time. A Bankrate survey conducted in May found that nearly half of all BNPL users experienced at least one problem, and overspending topped the list. In recent months, however, it's what people have been buying with BNPL loans that have raised red flags among economists and analysts. One in four BNPL users say the installment loans to buy groceries, according to surveys conducted in April and May by LendingTree. That's up from 14% from a year before. There was a spike in these types of purchases when inflation hit 40-year highs back in 2022. 'Those loans have traditionally been thought of for clothing and gaming consoles and furniture and things like that,' Schulz said. 'But when people are using them for something as basic and fundamental as groceries, it is certainly concerning.' 'That hints that people are looking for whatever way they can to extend their budgets in the face of higher interest rates, higher prices at the grocery store and elsewhere, student loan repayments and just other economic headwinds people are facing,' he added. The building economic headwinds are weighing more heavily on Americans. Consumer sentiment has been freefalling in recent months, and in May remained at a near-record low, according to the University of Michigan's closely watched indicator of how people are feeling about the economy. Since 1952, when the university started tracking how Americans felt about the economy, there have been nearly a dozen recessions, several oil price shocks, a few wars, a couple of inflationary episodes, a major financial crisis and a global pandemic. Turns out, a massive trade war nearly trumps all. Trump's sweeping and steep tariffs and other policy shifts have stoked recession fears and sent sentiment readings south every month this year. The university's index of consumer sentiment is down almost 30% since January. The biggest concern for the economy is how people and businesses manage those sour feelings and to what extent they change behaviors. A pullback in spending and business investment could ultimately lead to a contraction in the economy and rising unemployment. 'If [consumers are] watching the headlines to shape their sentiment, they're most likely feeling like deer in headlights — unable to move for fear the car may swerve at the last minute,' Elizabeth Renter, NerdWallet's senior economist, wrote in commentary on Friday. 'Economic policy is in a state of near-constant flux, and with that, so too are consumer feelings about the economy.' The latest Commerce Department data, however, indicated that Americans' income growth was stronger than expected in April and that people bolstered their savings accounts. That could ultimately help people guard against negative effects of the tariffs yet to come, noted Gary Schlossberg, market strategist at Wells Fargo Investment Institute. 'Solid income growth and a more elevated saving rate should help cushion households from the brunt of inflation's tariff-related increases in coming months, resulting in a second-half 'soft patch' for the economy rather than a bona fide recession,' he wrote last week.
CNN
3 days ago
- Business
- CNN
How American consumers are feeling the squeeze, in 4 charts
The lingering effects of high inflation coupled with high interest rates have made it harder in recent years for many Americans to get ahead financially. The hits just keep coming. A raft of policy moves from the Trump administration, including particularly steep tariffs that could cause prices to rise, and the whipsaw approach being taken, have stoked uncertainty and driven down sentiment to some of the lowest levels on record. That combination of higher prices, uncertainty and pessimism can be outright noxious as pullbacks in consumer and business spending can have cascading negative effects on the labor market and the broader economy. The consumers who power the US economy with their spending have been resilient to date — but they're being increasingly spread thin. Debt loads are climbing, as are defaults, and indicators of consumer strain are flashing red: For example, an increasing number of people are paying for their groceries in installments. Among those feeling the biggest squeeze are student loan borrowers who have been mired in confusion since the pandemic and amid two presidential administrations' opposing desires for those outstanding balances. The prospects of sharply reduced monthly payments and, especially, debt forgiveness have faded; instead, those who have fallen behind on payments not only are seeing their credit scores tank as a result, but they also risk having their wages garnished by the government. Here's a quick look at how household finances are becoming increasingly frayed: The Covid-19 pandemic upended the US economy — but in the process, some Americans were able to swiftly pay down their debt and sock away money in savings. Stimulus checks, payment pauses (on student loans and rents, in some cases), cutbacks in travel and other discretionary spending, as well as a $430 billion 'refinancing boom' helped give Americans plenty of dry powder and a leg up on their debts. The shored-up savings helped to power a post-pandemic recovery, and credit card balances shot up accordingly. The record-setting balances, on their own, weren't necessarily a troublesome indicator. Credit card use rises as the population grows, as more people shop online, and as the economy and wage gains remain strong. However, the post-pandemic recovery included a bout of decades-high inflation that the Federal Reserve tried to combat with decades-high interest rates. Where the rubber meets the road is how people were managing those rising and costly debts. By the end of last year, Americans were having greater difficulty in managing rising debt and, in some cases, hadn't been that overextended since the aftermath of the Great Recession. The share of households becoming seriously delinquent on their auto loans and credit cards hit 14-year highs. Moreover, at the start of this year, it was highly expected that student loan delinquencies would worsen. The 3.5-year payment pause ended in September 2023; however, an additional provision under the Biden administration provided a one-year 'on-ramp' where borrowers were shielded from the negative effects of a missed payment. That grace period ended September 30, 2024, and missed payments started hitting credit reports. Student loan delinquencies jumped to 7.74% from 1% following the ending of a pandemic-era pause of reporting past-due loans on credit reports, according to the Federal Reserve Bank of New York's first-quarter Household Debt and Credit Report. 'Adding student loans back into the mix certainly looks like it was a bridge too far for a lot of people, when it comes to their ability to pay the bills down,' Matt Schulz, chief credit analyst at LendingTree, said in a recent interview with CNN. And when the loans land into the serious delinquency territory (when they're late by 90 days or more), that's a major knock on people's ability to achieve other goals: Defaulted borrowers with credit scores above 620 saw average negative score changes north of 140 points, and those with scores north of 720 saw drops of 177 points on average, New York Fed research showed. In addition to the credit score impacts, those who have defaulted on their federal student loans will likely see their wages garnished by the Department of Education. 'The money that has to go to student loan payments now is money that can't go to paying off credit card debt or building an emergency fund or working toward other financial goals that build a stable foundation,' Schulz said. Buy Now, Pay Later installment plans have become more widely available and adoption rates have increased as people of all ages — but especially younger adults — have grown more comfortable incorporating them into their shopping habits. At their best, Buy Now, Pay Later loans can serve as an alternative to credit cards and are used by consumers who are seeking more flexible payment options, who want to overcome a tight financial spot, or who are looking to smooth out some bigger transactions to better meet their budgets. But it's the 'at their worst' part where there's greater cause for concern. Buy Now, Pay Later comes with such ease that people can quickly spend well beyond their means — especially if they start stacking multiple installment loans at the same time. A Bankrate survey conducted in May found that nearly half of all BNPL users experienced at least one problem, and overspending topped the list. In recent months, however, it's what people have been buying with BNPL loans that have raised red flags among economists and analysts. One in four BNPL users say the installment loans to buy groceries, according to surveys conducted in April and May by LendingTree. That's up from 14% from a year before. There was a spike in these types of purchases when inflation hit 40-year highs back in 2022. 'Those loans have traditionally been thought of for clothing and gaming consoles and furniture and things like that,' Schulz said. 'But when people are using them for something as basic and fundamental as groceries, it is certainly concerning.' 'That hints that people are looking for whatever way they can to extend their budgets in the face of higher interest rates, higher prices at the grocery store and elsewhere, student loan repayments and just other economic headwinds people are facing,' he added. The building economic headwinds are weighing more heavily on Americans. Consumer sentiment has been freefalling in recent months, and in May remained at a near-record low, according to the University of Michigan's closely watched indicator of how people are feeling about the economy. Since 1952, when the university started tracking how Americans felt about the economy, there have been nearly a dozen recessions, several oil price shocks, a few wars, a couple of inflationary episodes, a major financial crisis and a global pandemic. Turns out, a massive trade war nearly trumps all. Trump's sweeping and steep tariffs and other policy shifts have stoked recession fears and sent sentiment readings south every month this year. The university's index of consumer sentiment is down almost 30% since January. The biggest concern for the economy is how people and businesses manage those sour feelings and to what extent they change behaviors. A pullback in spending and business investment could ultimately lead to a contraction in the economy and rising unemployment. 'If [consumers are] watching the headlines to shape their sentiment, they're most likely feeling like deer in headlights — unable to move for fear the car may swerve at the last minute,' Elizabeth Renter, NerdWallet's senior economist, wrote in commentary on Friday. 'Economic policy is in a state of near-constant flux, and with that, so too are consumer feelings about the economy.' The latest Commerce Department data, however, indicated that Americans' income growth was stronger than expected in April and that people bolstered their savings accounts. That could ultimately help people guard against negative effects of the tariffs yet to come, noted Gary Schlossberg, market strategist at Wells Fargo Investment Institute. 'Solid income growth and a more elevated saving rate should help cushion households from the brunt of inflation's tariff-related increases in coming months, resulting in a second-half 'soft patch' for the economy rather than a bona fide recession,' he wrote last week.
Washington Post
26-05-2025
- Politics
- Washington Post
Monday briefing: Trump and Putin; tariff delay; Elon Musk's future; falling credit scores; coronavirus vaccines; and more
President Donald Trump scolded Russian President Vladimir Putin yesterday. Trump said he will delay tariffs on the European Union until July 9. Elon Musk is preparing to step back from politics. A U.S. citizen was charged with attempting to bomb the U.S. Embassy in Tel Aviv. Millions of Americans are suddenly facing dramatically lower credit scores.
Washington Post
25-05-2025
- Automotive
- Washington Post
Millions of Americans hit with bad credit after missed student loan payments
Millions of Americans are suddenly facing dramatically lower credit scores from delinquent student loans, making it tougher for them to secure housing, insurance, car loans, even employment at a vulnerable time for the U.S. economy. Credit scores dipped by more than 100 points for 2.2 million delinquent student loan borrowers, and 150 points or more for more than 1 million in the first three months of 2025, according to an analysis by the Federal Reserve Bank of New York. It's the kind of credit score drop that follows a personal bankruptcy filing. Roughly 2.4 million of those Americans previously had favorable credit scores and would have qualified for cars loans, mortgages or credit cards before these delinquencies were reported, researchers said. The slide in credit scores could lead to pricier loans for millions as borrowing costs are near 20-year highs. The Federal Reserve has signaled that it doesn't plan to cut interest rates right away. Already there are signs that lower credit scores are making it harder for more Americans to get loans, with rejection rates for auto loans, credit cards and mortgage refinancing all ticking up in February, compared to a year earlier. Tina Johnson was two days away from finalizing the purchase of a used Nissan Pathfinder when she got notice that her preapproved loan was no longer valid. Her credit score had fallen from 650 to 418 after she missed $440 worth of student loan payments that she didn't realize were required again. Although the Department of Education said lenders would send borrowers a bill at least three weeks before it was due, Johnson said she was never notified that payments needed to resume. 'Nothing, no email, no phone call, no letter — I could've avoided all this if I had known,' said Johnson, 44, who lives in Fleming County, Kentucky. Johnson's expected car payment of $350 a month nearly doubled overnight, making it unaffordable for the DoorDash delivery driver. She's stuck with her 12-year-old Nissan Altima for now. Johnson says she's also putting off other plans, including borrowing against her home to repair her roof and going back to school for a bachelor's degree, because of the sudden hit to her credit score. 'I took care of the accounts, but there's nothing else I can do,' she said. 'It'll take me years to get those 200 points back.' Federal student loan payments were paused early in the coronavirus pandemic in March 2020, offering millions of Americans relief at a time of economic upheaval and high unemployment. Although payments started back up in late 2023, the Biden administration offered a year-long grace period. That ended on Sept. 30, but millions of borrowers have yet to make a payment on their student loans. This month the federal government restarted collection efforts for defaulted student loans and said it plans to resume seizing wages, tax returns and Social Security payments this summer, making the stakes even higher. Nearly 1 in 4 borrowers required to make loan repayments were more than 90 days behind at the end of March, according to the Federal Reserve Bank of New York analysis. And although younger Americans tend to hold the most student debt, borrowers ages 40 and older are most likely to be behind on their loans, suggesting that years of inflation are making it harder for middle-aged Americans to keep up with payments. 'This is the beginning of something big, and we need to be paying attention,' said Dominik Mjartan, chief executive of American Pride Bank in Macon, Georgia. 'There's a very high cost to having a low credit score in America. Your cost of living goes up — your cellphone bill, your utilities, your insurance payments, everything. And that trickles down through the economy.' Credit scores, which generally range from 300 to 850, offer a snapshot of a person's financial history that takes into account debt levels, bill-paying record and length of credit background. They're used by lenders of all types, as well as landlords, employers, insurance firms, cellphone providers and utility companies to gauge how likely someone is to make loan payments on time. A good credit score, generally 670 or higher, can translate to lower interest rates and higher credit limits, while a subprime score, under 620, can disqualify borrowers from most conventional loans. 'It's been a major hit to credit scores, and for a lot of people, has been enough to put them in subprime territory, making it very difficult to get loans at decent interest rates,' said Stefania Albanesi, an economics professor at the University of Miami and a former researcher at the New York Fed. 'And while credit scores can drop quickly, they recover very slowly. Even if you've gotten back on track with your payments, it can take years to get back to where you were before.' Recent student loan delinquencies have helped drag down the average credit score for all Americans, to 715 in February — the lowest level since early in the pandemic, according to FICO, a data firm used by lenders. Journey Butler graduated with a degree in political science from Florida A&M University a couple of years ago and had planned to start law school next year. But that is up in the air after she found out last week that her credit score had dropped 168 points, to 521. Butler thought her student loans were still on hold, since she had obtained an extension due to a local natural disaster last year. She'd missed a couple of voicemails and emails from her loan provider, and she didn't realize anything was wrong until she got an alert about her dinged credit. The 21-year-old quickly paid off her $500 balance but was told it could take years for her credit to recover. Now Butler says it will be next to impossible to secure a new apartment, much less more student loans. 'I got that message and everything kind of went crashing down,' said Butler, who works for a health insurance company in Tallahassee. 'You need a background check to get a job, to buy a house, to get car insurance. It literally affects every area of my life.' There are signs that Americans are already having trouble accessing credit. Nearly 42 percent of mortgage refinance applications were turned down in February, up from 27 percent a year earlier, according to a New York Fed survey. Rejection rates for car loans jumped from 2 percent to 14 percent in the same period, while credit card denials grew five percentage points to 22 percent. Meanwhile, the share of discouraged borrowers — who needed credit but did not apply for it because they didn't think they would be approved — rose to a record high of 8.5 percent, according to the survey, which dates back to 2013. 'Of course there are ripple effects: People's financial margin for error was already pretty tiny, and when you add in student loan payments for the first time in several years, that makes a big difference,' said Matt Schulz, chief consumer finance analyst at LendingTree, an online loan marketplace. 'There's no way rising student loan delinquencies won't have some sort of effect on people's ability to repay other types of debt as well.' Destiny, a 30-year-old in Georgia, is set to start a tech job in the Midwest next month. But first she has to find a place to live, which she says has become unfeasible since her credit score plunged seemingly overnight from the high 700s to the low 400s. Destiny, who spoke on the condition that she be identified by only her first name because she fears losing her job offer, was between jobs and trying to get $44,000 in student loans deferred when payments started back up late last year. 'Every property manager looks at me and says, 'Your credit score is too low,'' she said. 'I had worked so hard to get my credit score up, but then this hit and I can't get the bare minimum of a roof over my head.' Economists expect another decrease in credit scores in the coming months, as more student loans get flagged as overdue. Although 2.7 million borrowers were reported newly delinquent in February, twice as many — 5.4 million — had not been marked delinquent even though they haven't made any student loan payments since October, according to FICO. The rise in student loan delinquencies and subsequent drop in credit scores, economists say, is an early sign that Americans are under increasing financial strain. In interviews, borrowers said their household budgets had changed since 2020, when many of them last made regular payments toward their student loans. Higher costs for groceries, utilities, gas and other necessities have stretched them thin, making it tougher to shoulder new loan payments. The restart of student loan payments and the impact of delinquent borrowers' lower credit scores is expected to reduce overall economic growth this year by about 0.13 percent, according to estimates from Moody's Analytics. That drag comes at a tenuous time for the economy, which shrank in early 2025 mostly because of a rush of imports that counted against GDP. 'The fact that student debt can be garnished from your wages — that becomes a very different risk,' said Mjartan of American Pride Bank. 'It's a downward spiral: If you can't keep up with your student loans and your wages get garnished, then you can't pay your other debts, either, and you can't spend.' Kayla Moore found out in March that her credit score — a 'good' 730 — had fallen by more than 100 points to become subprime after three missed student loan payments of $30 apiece. Moore, who had already paid off $5,500 in loans, said her father had offered to cover the last $1,000. She didn't realize those payments had slipped through the cracks until she got emails from Credit Karma and Experian. She immediately paid the balance in full but says her credit score has barely budged, to the mid-600s. 'I basically lost my mind when I saw what had happened,' said Moore, 24, who works at a bank in Chicago. 'I really wanted to move to a nicer apartment this year, and now I'm worried they're going to see my credit score and immediately deny me.' Danielle Douglas-Gabriel contributed to this report.
Bloomberg
22-05-2025
- Business
- Bloomberg
States Set To Defy US Credit Downgrade
US states from Florida to North Carolina and Texas would likely hold onto top-notch credit scores from Moody's Ratings, mostly because they're in better fiscal shape than the federal government itself. Bloomberg's Amanda Albright has more on the story. (Source: Bloomberg)
