Inflation pushing more borrowers with low FICO scores to default -study

div classBodysc17zpet90 cdBBJodivpNEW YORK Reuters – Soaring inflation pushing the price up for everyday items like gas and groceries in the United States is leading consumers with low credit scores to borrow more and default on their loans more often, a study by credit agency TransUnion found on Wednesday.p

pCredit card balances and delinquency rates among nonprime borrowers–people with credit scores below 660–increased by the greatest percentage since early 2021, when inflation began to rise significantly. If high inflation persists, the study projected delinquencies could rise to about 8.4 of total credit card loans by the first quarter 2023, up from 8 in the first quarter this year.pdivdivdiv classBodysc17zpet90 cdBBJodiv

pThe findings show that despite most consumers being in good financial standing thanks to robust government stimulus and wage growth, consumers with the least financial cushion are increasingly vulnerable to price shocks caused by inflation. p

p“Despite everything that has happened in the last two years, the consumer is in extremely good shape, but not all of them,” said Charlie Wise, head of global research and consulting at TransUnion. “Averages gloss over the fact that some are struggling.”p

pThe Federal Reserve on Wednesday is expected to raise interest rates by half a percentage point as part of its effort to combat high inflation, a move that will have knockon effects for credit card borrowers because it will increase borrowing rates.p

pWhile credit card delinquency rates remain below prepandemic levels for nonprime borrowers, the study found these consumers are also carrying a heavier debt burden monthtomonth than in the past two years. p

pThe average nonmortgage debt balance per nonprime consumer in the first quarter of 2022 was 22,988. That is up from 22,461 in the first quarter 2021, and also up from 22,970 in the first quarter 2020, before the pandemic began in the United States. p

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pp Reporting by Elizabeth Dilts Marshall Editing by Nick Zieminskip

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