Report: Majority of Consumers Have Subprime Credit Scores

Even if the employment market is expanding at its strongest rate in 15 years, many individuals are still working to remove negative marks from their credit reports.

According to a survey released Thursday by the Corporation for Enterprise Development (CFED), a nonprofit that lobbies for policy changes to aid low- and moderate-income households, the majority of consumers, or 56 percent, have subprime credit scores. As a result, these customers are frequently unable to obtain credit. And if they borrow, they’re likely missing out on the lowest rates available to people with better credit.

“Millions of Americans are being left out of the financial mainstream,” says Jennifer Brooks, CFED’s director of state and local policy and the report’s principal author. “They’re forced to rely on shady, often high-cost financial products that lock them in a debt cycle.”

According to credit experts, the report serves as a reminder that, even as many Americans return to work and earn regular paychecks for the first time in a long time, credit restoration takes time. Late payments and collections accounts, such as defaulted credit cards or a foreclosure, can stay on your credit record for up to seven years. Bankruptcy filings can last up to ten years on the record.

According to John Ulzheimer, head of consumer education at, a credit management Web site, “if you mess up in the world of consumer credit score, it’s a seven to ten year penalty.”

The Great Recession has been in full swing for seven years. However, Ulzheimer argues that many people who defaulted on loans, lost their houses, or filed for bankruptcy may still be waiting for the consequences to be removed from their credit records. “I believe most individuals were able to keep their jobs for some time – they fought the battle,” he says. “If they did lose their home in the end, it was probably not for a few years.”

Credit data from TransUnion, one of the major credit reporting companies, was analyzed by CFED researchers. The TransRisk score, which runs from 100 to 934, was used to calculate the credit score. According to Kasey Wiedrich, director of applied research for CFED, anyone with a credit score of 700 or lower was classified near prime or subprime.

A subprime credit score has a variety of repercussions. According to Wiedrich, for some people, this will mean paying higher interest rates on mortgages, auto loans, and credit cards. Others may not be eligible for traditional loans, forcing them to turn to riskier and more expensive borrowing options like payday loans or car title loans. “There’s a lot of variation,” she explains.

Because they haven’t taken out many loans in the past, some individuals with thin credit files were left out of the report. It’s also worth noting that there are many different forms of credit ratings, and the TransRisk score isn’t the most often used by lenders, according to Wiedrich. When evaluating potential borrowers and setting loan terms, banks and financial institutions might employ a variety of criteria, she adds.

According to Ulzheimer, many people who defaulted on loans during the crisis are now making consistent payments and are on their way to restoring their credit scores. Some of the concerns that initially held them back, such as late payments or delinquent accounts, will eventually have less of an impact on their credit ratings.

According to Gerri Detweiler, director of consumer education for, anyone working to restore their credit scores should focus on completing their payments on time each month, because recent payments will have a greater impact than earlier payment records. It will also make a difference if the overall debt load is reduced.

“Your payment history and the amount of debt you have will have the largest impact on your credit score,” she explains.

Consumers should also keep an eye on how much of their credit is being used. It’s ideal to use less than 10% of available credit, but if that’s not possible, consumers should utilize less than 25% or 30% of their credit.

According to Detweiler, having a high load on any one credit card might affect a person’s credit score, therefore customers should attempt to keep individual credit card balances below 30% of available credit. Credit inquiries can lower a person’s credit score and linger on their credit reports for up to two years, so individuals should be judicious about how many credit cards they apply for, she adds.

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