What impact will consumer deleveraging have on credit growth?
At Experian, our goal is to help lenders make more informed, confident decisions through comprehensive data, insight and analysis. In a recent study, Experian® tracked a sample of more than 426,000 credit-active consumers over a six-year period to understand the impact and implications of consumer deleveraging.
Using Experian’s unique data assets, the report analyzed consumer credit behaviors from Q2 2004 to Q2 2009 to determine whether the driver of the reduction in credit volume is demand or supply. According to the study, the demand for credit has declined, indicating consumer intent to deleverage. However, demand has not declined as drastically as anticipated. In fact, the decline in demand has been less severe than the decline in credit supply.
Additionally, the study found that change in demand varies with credit quality. For higher credit quality consumers, demand has rebounded to near prerecession levels, with little decline anytime during the recession.
Insight into the underlying drivers and trends of consumer deleveraging may help lenders set their credit origination strategy. Reducing leverage could benefit lenders if overborrowing was a key default driver. Conversely, it also may lower consumer spending and the market for consumer credit will continue to shrink. A lack of demand from consumers, at least those with good credit scores, is unlikely to impede growth.
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