Staff Notes: Credit Challenge is Everywhere

Nick Stanutz · January 19, 2021

I am often struck by how credit is perceived among our partner organizations, business contacts and the general public. There is broad-based acknowledgment of people struggling with credit challenges. But the “who are these people?” and “where are these people?” part of that acknowledgment is often missing.

The truth is that we all know someone who is struggling. They may not want you to know, and that lack of awareness makes their situation worse. You definitely work with someone struggling with credit or have family members struggling with credit. You can’t make assumptions based on a professional or executive sounding job titles, appearances, high wages or low wages. Income level is irrelevant. Credit challenge is everywhere.

Our willful ignorance of how many people suffer from credit challenge has allowed one industry to serve these people—the subprime finance industry. This industry should not be demonized because it allows access to capital, but it does contribute to personal financial challenge in a way that appropriately gives it the name “predatory lending.” On the Road Lending is an alternative for people with credit challenges, and we know from our lending experience that people are more than a credit score.

Credit scores are deeply personal and can cause embarrassment and even shame for people who find themselves on the subprime side of things. This of course keeps them from talking about credit with their friends, coworkers and family. The unfortunate outcome of this cloaking effect is that people who suffer have limited options to access needed credit.

Our society is geared toward consumption. It makes us the envy of the world. There is nothing inherently wrong with consumption when needs and wants are balanced and good financial decisions are made. But the reality is that we are irrational creatures, largely governed by emotion and prone to influence.

Financial education is widely viewed as deficient in the normal course of public education. At the same time, people are being induced to spend beyond their means more so than at any other time in our history. Social media and sophisticated advertising work against our better judgment and drive excessive consumption. It’s a perfect storm.

Roughly one out of three vehicles, new and used, financed or leased have less than prime credit, according to Experian’s third quarter 2020 State of Automotive Finance update. This means that the unfortunate one out of three folks who require access to credit to purchase a vehicle are paying much higher interest rates. These can regularly be 12%, 15%, 20% and higher if they can’t qualify for credit through traditional lenders.

Think about that when you see a paper tag on a vehicle in your neighbor’s driveway, in the office parking garage, on the highway, in a selfie posted to social media, or at a family gathering. There is at least a one out of three chance that person is suffering from credit challenges, paying too much in interest on that vehicle, and enduring a heavy financial burden. Data like that from Experian reflects the facts. You may not know it, but the folks suffering are people you engage with on a regular basis.

My experience talking to people in business and the community is that credit challenges are widely acknowledged but with a caveat that the people suffering are somewhere else. It’s a convenient but uninformed answer. We need courageous people and organizations to rise up and acknowledge reality. Our society depends on consumption and fair access to credit, and a credit score shouldn’t be the only way to unlock fair and equitable financing.