Understanding Changes in Household Debt by Credit Risk Category: The Role of Credit Score Transitions Accessible Data
Figure 1: Total Loan Balances
Figure 1 is a line graph depicting total loan balances in every quarter between 2001 and 2018:Q2 for borrowers with credit scores in the prime, near-prime, and subprime risk categories, denoted in 2018:Q2 dollars. The subprime line generally hovers below 1.8 trillion dollars, but rose rapidly beginning in 2006 to a local peak in 2009 of around 2.6 trillion dollars. The near-prime line has hovered around 2.6 trillion dollars since 2009 but rose steadily from 2.6 trillion dollars to around 3.5 trillion dollars between 2001 and 2007. The prime line is saw toothed: it grew rapidly between 2001 and 2009 (from about 4.2 trillion dollars to 8.2 trillion dollars), dropped down during and after the recession (to below 7.4 trillion dollars), and grew somewhat rapidly between 2013 and 2018 (up to about 9 trillion dollars).
Note: Prime have scores greater than 719; near-prime are borrowers with an Equifax Risk Score from 620 to 719. Scores are measured contemporaneously. Student loan balances prior to 2004 were estimated. The data are converted to constant 2018:Q2 dollars using the consumer price index.
Source: FRBNY CCP/Equifax; Bureau of Labor Statistics consumer price index.
Figure 2: Distribution of Credit Scores
Figure 2 is a line graph depicting the distribution of credit scores between 2001 and 2018:Q2 in each credit risk category – prime, near-prime, and subprime. The prime line indicates the prime share has risen from about 45 percent of borrowers to nearly 55 percent over this window. The subprime share has fallen from approximately 27 percent to 20 percent and the near-prime share, over the first region, decreased up until the recession (from about 27 percent to 23 percent) but has since increased to about 25 percent. The near-prime and subprime lines cross each other in 2013.
Note: Share of individuals in FRBNY CCP/Equifax panel with indicated risk scores. Prime have scores greater than 719; near-prime are borrowers with an Equifax Risk Score from 620 to 719. Scores are measured contemporaneously.
Source: FRBNY CCP/Equifax.
Panel A of the appendix figure plots migrations of borrowers into and out of the prime category from the near-prime category four quarters earlier between 2001 and 2018:Q2, and panel B plots migrations of borrowers into and out of the subprime category from the near-prime category four quarters earlier over the same period. While there is some volatility, migrations into prime averages around 10 million borrowers. Out-migration from this category is more stable at 5 million borrowers. Migration into and out of subprime is relatively stable with between 5 and 10 million borrowers migrating in, and 10 million borrowers migrating out.
Note: Prime have scores greater than 719; near-prime are borrowers with an Equifax Risk Score from 620 to 719. Migrations are from four quarters earlier. Gross flows from subprime into prime average 0.141 million per year; gross flows from prime into subprime average 0.605 million per year.
Source: FRBNY CCP/Equifax.