March 2020 brought dramatic changes to the U.S. economy with stay-at-home orders, the temporary closing of non-essential businesses and spikes in unemployment insurance claims. As a result, lenders today are grappling with the unknown as the economic crisis at hand has challenged credit strategies regarding modern risk management.
LexisNexis® Risk Solutions and ID Analytics examined the early impacts of the spring 2020 lockdown to better understand the rapidly changing landscape. Our newly combined organizations have unique insight into U.S. consumer credit behaviors that allows us to obtain a more complete view into emerging risk trends which might impact businesses and consumers.
We monitored our data networks in March and April 2020 and the initial data revealed surprising new trends in how consumers altered their credit-seeking behaviors during this time.
One of the most surprising trends is that while consumers with prime credit scores reduced their credit seeking in March and April 2020, prime consumers ages 18-30 increased their credit seeking by as much as 36%.
What does this pattern indicate? One possible answer is that younger consumers, even those with prime credit scores, may lack the same financial flexibility as older consumers. This may require them to rely more heavily on credit during times of financial stress. It is also important to note that younger consumers may have more comfort seeking and managing credit through digital channels relative to older consumers, which may have played a role when businesses were closed for in-person transactions.
Our data networks are providing important early learnings about how consumers altered their behavior in the months immediately following the spring 2020 lockdown. We will continue to monitor these trends in the coming months to help our clients navigate the uncertainty of today’s credit environment and regain confidence in assessing consumer creditworthiness.
For more information download our new white paper, The Changing Shape of Credit Risk. Watch for our next study that will evaluate the effectiveness of alternative data sources in evaluating credit risk during a time when consumer credit standing, and the traditional credit scores we rely on to evaluate them have been heavily disrupted.
Solomon Semere is Senior Director, Credit Risk and Marketing Strategy at LexisNexis Risk Solutions.