Three Myths About Credit-Challenged Consumers: Underserved customers are everywhere and they need your help
When surprise expenses are higher than consumers’ budgets allow, they often look for options that can help them get what they need quickly, then make payments over time.
According to the Federal Reserve, 32% of U.S. consumers don’t have $400 to cover an unexpected expense. That’s why, when life happens, many people turn to financing.
But if a customer has imperfect credit, financing a purchase can be just as difficult as paying for it up front. More than a third of U.S. consumers have a subprime credit score, according to Experian. What lenders consider subprime varies, but a FICO score below 670 can be a roadblock to securing traditional financing.
For those with less-than-ideal credit, finding safe and fair lending can be an enormous obstacle. And they are often subject to extra fees, costlier interest amounts, and a higher denial rate than those with prime credit scores.
Who has trouble qualifying for traditional credit?
They may not be who you think. People who struggle to secure financing may be employed and have assets such as a home or a car. Like other consumers, they likely structure their loan and credit payments around their paydays and can be just as responsible and thoughtful with their finances. But maybe they haven’t established credit yet, or perhaps their low score is due to missed payments, recent charge-offs, or high debt-to-income ratios.
These consumers make up a significant portion of the population and most retailers’ potential customer base. Yet, common misperceptions remain. Here are the top three myths about credit-challenged consumers.
Myth 1: They Don't Exist
While the average credit score is currently at a record high of 716, not every consumer is doing well financially. Consider these factors that make it nearly impossible for consumers to qualify for traditional financing:
· 16% of consumers have FICO scores in the “very poor” range (below 579)
· Bankruptcy filings totaled 413,616 in 2021
The industry is closely monitoring factors that may influence consumers’ financial well-being, including inflation, the jobs market, and housing. Rising interest rates, for example, will make the cost of using credit more expensive, particularly impacting those who carry balances.
When consumers can’t get approved for traditional financing, what are the alternatives? Snap Finance offers financing options that let them get what they need while you generate more sales, open new revenue streams, and increase your average order value.
Myth 2: They’re Financially Irresponsible
Many factors can contribute to someone becoming a subprime borrower and/or needing financing, financial irresponsibility usually isn’t one of them. Education, ethnicity, geography, marital status, and having children under age 18 can all influence economic well-being, according to the Federal Reserve.
Post-pandemic, the average credit score rose and debts fell, according to Experian. In 2022, the average score is at its highest ever, but is leveling off year-over-year due to a small increase in missed payments, slightly elevated consumer debt levels, and an increase in consumers obtaining new credit.3 Despite the economic turmoil of the past few years, it seems consumers are likely to honor their debts, even when doing so is difficult.
And when they need financing options, Snap’s proprietary risk decisioning gives your customers the best chance of approval while minimizing the risk to you. Approvals are quick and our payment plans fit consumers’ paydays and lifestyle. That helps them get what they need, when they need it.
Myth 3: They'll Directly Ask for Alternative Financing Options
Money is an uncomfortable topic for many, and it's a particularly challenging conversation for financially vulnerable people to have. More than half of U.S. consumers feel embarrassed talking to others about their finances, and 45% say debt is among the most controversial money-related topics to discuss, according to 2022 research.
There are many reasons why a consumer might hesitate to ask for nontraditional financing. Some grew up in a family where money wasn’t discussed, and that taboo may have lasted into their adulthood. Others could be ashamed about the state of their finances.
The good news for retailers? Nearly 1 in 4 (24%) admitted they are likely to talk to strangers about their finances. If your customers are reluctant to begin a conversation about alternative financing, they may never know options exist. Don’t let consumers’ hesitancy – or yours – create lost sales opportunities.
With Snap, you can proactively present financing options on your website and in your store. Customers can easily apply using text or QR code, online or in-store, and receive a decision in seconds.
Reach More Customers With Snap
Consumers with imperfect credit want the same access to goods and services that other consumers enjoy. They’re in your store and ready to shop. They just don’t have all the funds to pay up front.
We look beyond traditional credit scores, helping more customers get approved and get what they want need and want. Reach more customers and continue growing your bottom line with Snap.