American Consumers Are More Likely Than Ever To Default On Loans, Bills, Study Finds

Mary Pilon, who holds down the fort at The Wallet, takes a look at data that were released by TransUnion today. According to the Credit Risk Index, which TransUnion created about a decade ago, extending credit to American consumers is nearly 25% more risky than it was just ten years ago. From the Wallet:Lenders use the Credit Risk Index to determine creditworthiness in different geographic areas. The index baseline is 100, but it rose to 124.79 at the end of 2008 — meaning that consumers are defaulting on accounts, loans and so on with greater frequency and in bigger numbers.The data is used at a broad level and has no bearing on individual loans and lines of credit. But for consumers, this number helps explain why it’s much harder to secure a loan these days, and might hint at why more people are receiving notices from their credit-card company, informing them that their credit limit’s been cut.Read the rest of Mary’s story here.You can read TransUnion’s press release here.

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0 thoughts on “American Consumers Are More Likely Than Ever To Default On Loans, Bills, Study Finds

  1. ‘Because of the manner in which most credit scores are constructed, one cannot simply take the average of a pool of credit scores to get a measure of average credit risk–that is, the likelihood of defaulting on a loan,’ said Chet Wiermanski, group vice president and global chief scientist, Analytics and Decisioning Services.Not that I doubt their data, but I would feel more comfortable if they try a bit harder to explain how they weigh different types of loans differently (eg., does mortgage counts for significantly higher portion of risk? if so, how much higher?) That being said, it’s probably no surprise to anybody that the risk went up (out of curiosity, am I correct to interpret that the risk never went down during the past decade?), and it could potentially explain why so many (or all of the) CC companies are tightening their purse strings, so to speak. However, I would have to ask for further proof to show that this is not a mere coincidence. In another word, have CC companies been cutting limits and closing accounts to varying extents in accordance to this risk index?

  2. From the press release:’TransUnion’s Index reflects the distribution of consumer credit risk as measured by TransUnion’s TransRisk Account Management Credit Risk Model and is a key metric within TransUnion’s Trend Data database. For comparison purposes, the Index in recent years has generally ranged between 110 and 120, experiencing a one- or two-point shift between quarters.’It’s difficult to know if there were any dips during the ten-year period, Anon. I can’t tell from the press release.

  3. Anon, what Chet means is that the scores are scaled according to the logarithm of the ratio of the odds of a serious delinquency occurring. If you work out the math, you find that taking a simple average of the scores would understate the increase in risk, so they had to adjust for that.It has nothing to do with weighing different types of loans.

  4. I was surprised to see, the state-by-state risk rankings did not place Michigan among the top ten. I love the place, but fact is that they’re slammed by every recession, crushed by this one.

  5. Ten years ago economic times were better. Test again in a few years and things will have gone done considerably. People are always much more likely to default in a recession.Not that I advocate for carrying debt but if I did have balances and it was between my food/shelter and my credit card bill (which is a sign, by the way, that you are in deep trouble) – I would provide shelter and food. No question.

American Consumers Are More Likely Than Ever To Default On Loans, Bills, Study Finds

Mary Pilon, who holds down the fort at The Wallet, takes a look at data that were released by TransUnion today. According to the Credit Risk Index, which TransUnion created about a decade ago, extending credit to American consumers is nearly 25% more risky than it was just ten years ago. From the Wallet:Lenders use the Credit Risk Index to determine creditworthiness in different geographic areas. The index baseline is 100, but it rose to 124.79 at the end of 2008 — meaning that consumers are defaulting on accounts, loans and so on with greater frequency and in bigger numbers.The data is used at a broad level and has no bearing on individual loans and lines of credit. But for consumers, this number helps explain why it’s much harder to secure a loan these days, and might hint at why more people are receiving notices from their credit-card company, informing them that their credit limit’s been cut.Read the rest of Mary’s story here.You can read TransUnion’s press release here.

This entry was posted in Uncategorized by . Bookmark the permalink.

0 thoughts on “American Consumers Are More Likely Than Ever To Default On Loans, Bills, Study Finds

  1. ‘Because of the manner in which most credit scores are constructed, one cannot simply take the average of a pool of credit scores to get a measure of average credit risk–that is, the likelihood of defaulting on a loan,’ said Chet Wiermanski, group vice president and global chief scientist, Analytics and Decisioning Services.Not that I doubt their data, but I would feel more comfortable if they try a bit harder to explain how they weigh different types of loans differently (eg., does mortgage counts for significantly higher portion of risk? if so, how much higher?) That being said, it’s probably no surprise to anybody that the risk went up (out of curiosity, am I correct to interpret that the risk never went down during the past decade?), and it could potentially explain why so many (or all of the) CC companies are tightening their purse strings, so to speak. However, I would have to ask for further proof to show that this is not a mere coincidence. In another word, have CC companies been cutting limits and closing accounts to varying extents in accordance to this risk index?

  2. From the press release:’TransUnion’s Index reflects the distribution of consumer credit risk as measured by TransUnion’s TransRisk Account Management Credit Risk Model and is a key metric within TransUnion’s Trend Data database. For comparison purposes, the Index in recent years has generally ranged between 110 and 120, experiencing a one- or two-point shift between quarters.’It’s difficult to know if there were any dips during the ten-year period, Anon. I can’t tell from the press release.

  3. Anon, what Chet means is that the scores are scaled according to the logarithm of the ratio of the odds of a serious delinquency occurring. If you work out the math, you find that taking a simple average of the scores would understate the increase in risk, so they had to adjust for that.It has nothing to do with weighing different types of loans.

  4. I was surprised to see, the state-by-state risk rankings did not place Michigan among the top ten. I love the place, but fact is that they’re slammed by every recession, crushed by this one.

  5. Ten years ago economic times were better. Test again in a few years and things will have gone done considerably. People are always much more likely to default in a recession.Not that I advocate for carrying debt but if I did have balances and it was between my food/shelter and my credit card bill (which is a sign, by the way, that you are in deep trouble) – I would provide shelter and food. No question.

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