Consumers start to borrow more, but not those at extreme ends of range

Consumer credit applications have returned to pre-pandemic levels, the federal consumer financial protection agency said Tuesday, with “prime” and “near-prime” consumers driving the recovery – but subprime and “deep subprime” consumer applications remain down.

In a release, the Consumer Financial Protection Bureau (CFPB) said its issue brief about credit applications also showed that applications from “superprime” borrowers (those with the highest credit scores) were down from all types of credit except mortgages.

The brief follows two similar reports issued last year in the immediate aftermath of the coronavirus crisis (in May and December). The agency said the most recent report, like those, showed an increase in credit applications, especially those from borrowers with below-prime credit scores, as federal stimulus payments were being delivered.

“Both borrowers with superprime and subprime credit scores are still not applying for credit as much as they were pre-pandemic,” CFPB Acting Director Dave Uejio said. “We will continue to keep a close watch on the marketplace as the economic recovery continues, to help ensure all consumers have access to financial products and services that are fair, transparent, and competitive.”

The bureau listed key points from the report as follows:

  • Auto loan inquiries dropped 52% by the end of March 2020 and returned to their usual pre-pandemic trend by January 2021.
  • New mortgage credit inquiries also fell in March 2020 and then surged. Inquiries have exceeded their usual, seasonally adjusted volume by 10% to 30%, which the bureau said reflected “the unusually high activity in the mortgage market throughout the pandemic.”
  • Revolving credit card inquiries took the longest to recover from the initial March 2020 decline, until March 2021, when the level of these inquiries returned to their usual levels.
  • Consumers with deep subprime credit scores showed the largest decline in auto loan inquiries compared to prior years, followed by inquiries from consumers with subprime credit scores. These consumers also showed declines in new mortgage and revolving credit card inquiries.
  • Changes in auto loan and new mortgage applications were quite varied across the states while changes in credit card applications were generally uniform.

Recovery of Credit Applications to Pre-Pandemic Levels brief