Five things your business should know about credit-challenged consumers

From making ends meet to paying off debt, many people are overwhelmed by financial obstacles. And for credit-challenged consumers, the difficulties and roadblocks can quickly add up.

A low credit score influences how people shop, what they buy, and how they pay for it. Credit-challenged consumers are shopping in your stores. Are they leaving empty-handed?

Understanding the financial behavior of non-prime customers – and offering more inclusive financing options – is not only good for consumers but can lead to stronger customer loyalty and increased revenue for your business.

To better serve this growing market, here are five things businesses should know about those with credit scores below 670, based on insights from Snap Finance's recent research on credit-challenged consumers.

1. The credit-challenged market is bigger than you might think

You may be surprised to learn just how many people in the U.S. struggle with credit issues. Although it can vary from lender to lender, a subprime borrower is generally considered one who has a FICO® score below 670 – and 29% of U.S. consumers' scores fall below that number.

That translates to millions of Americans who are considered subprime borrowers – and an increasingly large portion of your potential customer base who may not be able to get what they need or want.

Why do so many consumers struggle with credit scores? It’s not always because of poor decision-making. Life events such as medical emergencies, job loss, or divorce can quickly damage someone’s credit. Others may be credit invisible with little or no credit history – a common issue among young adults and recent immigrants. Unfortunately, many people with low or no credit are left underserved, with limited access to credit and the essential items they need.

It can take years to build credit or for a credit score to recover from negative items on a credit report. In the meantime, consumers with credit challenges still need new tires, furniture, mattresses, appliances, and other essential items, and may need alternative financing options to get what they need. Turning away these shoppers hurts them and your business.

2. Credit scores change how people shop

If you’ve never had a poor credit score, it might be hard to appreciate just how much it influences spending. For credit-challenged consumers, every financial decision – from tire shopping to securing housing – is affected by their score.

Because it’s difficult to pay for a purchase upfront, they may look for stores offering payment plans or financing options. Snap Finance found that among those with lower credit scores, 61% said available financing for all credit types was an important factor when choosing where to shop for a big-ticket item.

When choosing where to buy a big-ticket item, Snap also found that low prices and convenience matter equally to consumers of all credit types. But customer reviews, knowledgeable store employees, and recommendations from friends and family matter slightly less to those with credit scores below 670, compared to those with better credit.

Understanding the unique needs of this growing customer segment can help your business help consumers of all credit types – and avoid losing their business to competitors that offer more flexibility.

3. Those with credit challenges are still buying essential Items

Inflation and economic concerns have led many consumers to think twice about spending money. And those with credit challenges are especially hard hit by current conditions. Snap found that 70% of those with credit scores below 670 said they’re cutting back on nonessential purchases, compared to 59% of those with higher credit scores.

But Snap found that consumers of all financial backgrounds are still shopping for essential items, such as appliances, electronics, tires, or mattresses. Consumers with low credit scores may have to be more strategic as they shop for essential items as they often face have roadblocks that make it more difficult to get what they need and achieve their financial goals.

Remember, just because consumers have credit challenges doesn’t mean they lack the intent or need to buy. On the contrary, this customer segment still wants access to quality products and services – they just require pay-over-time options that work for them.

4. People with lower credit scores have fewer financing options

Snap Finance found 35% of credit-challenged consumers rely on financing to make ends meet - up 4% year over year. Despite their need for options to pay over time, consumers with low credit scores often find themselves shut out of traditional financing. Most lenders and in-store financing providers focus on prime borrowers with strong credit histories, leaving non-prime customers with few alternatives.

This lack of access to financing leads to difficult decisions. Snap Finance found 75% of those with credit challenges would have difficulty paying for a major unexpected expense. Imagine needing to replace a broken appliance with no cash on hand – and no access to traditional financing. This is a frustration credit-challenged consumers regularly face.

Alternative financing solutions can bridge the gap

Shoppers who don’t qualify for financing from a primary lender may be approved by a secondary lender under different terms. If they don’t qualify for traditional financing, they may qualify for subprime or tertiary financing, including lending and lease-to-own financing solutions.

Alternative financing options can help credit-challenged customers get what they need now. Snap Finance found that among consumers with credit challenges, 42% have used installment loan financing in the past five years and 24% have used lease-to-own financing – a 2% jump in the last year.

The growing use of alternative financing could be due to increased awareness and availability of these options. In addition, Snap's research shows younger generations – millennials and Gen Z – are more likely to have used lease-to-own financing than their older counterparts.

5. Inclusive financing options benefit consumers and businesses

Alternative financing options often a lifeline for consumers who might not otherwise be able to get what they need and want. And for businesses, they can save the sale and translate to new market opportunities, increased revenue, and a competitive edge in the marketplace.

When companies offer alternative financing for non-prime credit-challenged customers, they foster loyalty among customers who may otherwise feel overlooked. This loyalty can translate into repeat business and positive word-of-mouth. Alternative financing programs can also boost conversion rates, increase average order values, and improve customer retention.

Offering alternative financing reduces barriers for your customers while expanding your market reach. It’s a win-win situation where consumers get what they need, and businesses often see stronger sales.

A call to action

Customers with credit challenges are shopping in your store. Are they leaving empty-handed?

Understanding the unique challenges credit-challenged consumers face is the first step toward creating a more inclusive and profitable retail environment. By recognizing the financial behavior of non-prime and credit-challenged customers and offering innovative solutions, you can serve a broader audience while growing your business.

Take the time to evaluate your current financing options. Are they accessible to underserved populations? Do they help your customers shop with confidence? A few strategic changes could significantly improve your brand’s impact while driving long-term results.

Looking for more information? Check out these additional business resources from Snap:

• Understanding and Meeting the Needs of Consumers Facing Credit Challenges
• Unlock the Benefits of Tertiary Financing
• How Credit Challenges Shape the Financial Health and Habits of Consumers

Snap-branded product offering includes retail installment contracts, bank installment loans, and lease-to-own financing. Talk with your local Snap sales representative for more details on which product qualifies at your store location. For more detailed information, please visit snapfinance.com/legal/financing-options.