Inflation is affecting households across the board. In a recent podcast, Jeff Richardson, from VantageScore®, talked about how delinquencies are going up due to inflation.

Understanding Economic Challenges

Inflation is making it tough for everyone. Richardson said people with lower incomes and younger borrowers are having a harder time paying their bills.

Rise in Delinquencies: A Major Concern

More people are falling behind on payments. Richardson said this is happening across different types of loans and for different groups of people. Delinquencies can vary in nature, encompassing missed payments, late payments, and defaults across various financial obligations such as credit cards, mortgages, and auto loans.

Predicting Future Challenges

As long as inflation and high interest rates continue, it will be tough for people to keep up with payments. Richardson thinks delinquencies will keep going up for a while.

Challenges Faced by Consumers

Richardson emphasized the challenges faced by consumers, particularly those with lower incomes, due to inflation. He noted that inflation is not just a statistic but a daily reality impacting how people manage their finances.

Contributing Factors to Rising Delinquencies

According to Richardson, continued pressure on certain consumer groups, such as lower scoring consumers, lower income consumers, and younger borrowers, is fueling the rise in delinquencies. Despite the overall positive state of the economy, some individuals find it increasingly difficult to meet their payment obligations.

Analyzing the Increase in Delinquencies

Richardson pointed out the steady rise in delinquencies across credit segments, attributing this trend to the ongoing economic pressure caused by inflation. He stressed that this rise is evident across various loan products and demographic groups.

Future Trends in Delinquencies

Addressing the future trajectory of delinquencies, Richardson predicted that the trend would continue for a while longer. He highlighted the challenges posed by the humming economy, indicating that it might be difficult to manage and service debt due to high interest rates and inflation.

Impact on Credit Scores

Responding to questions about credit scores, Richardson emphasized their reliability despite economic fluctuations. He highlighted the dynamic nature of credit scores, where a score’s representation of risk varies based on economic conditions.

Strategies for Future Credit Decisioning

Looking ahead to credit decisioning in 2024, Richardson advised organizations to benchmark against best-in-class models and adapt to the dynamic credit market. He stressed the importance of embracing AI and advanced analytics while navigating regulatory concerns.

The Future of Credit Scoring

Richardson provided insights into the future of credit scoring, emphasizing the evolving nature of these models. He underscored the need for risk managers to closely monitor the dynamic relationship between scores and risk.

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