Mon, 02 May 2022 | consumers credit
A new survey from LendingClub and PYMTS.com finds that living paycheck to paycheck has become the dominant way people manage their cashflow in the United States, with close to two-thirds of the U.S. population, 64% or about 166 million adults, doing so in March 2022.
Living paycheck-to-paycheck means dedicating your entire paycheck to spending when there is next to nothing left at the end of the month, but many of these consumers remain creditworthy by actively managing their cash flow in real time. In fact, almost a quarter of paycheck-to-paycheck consumers report a credit score above the FICO average (750).
“Today, the number of people living paycheck to paycheck is reminiscent of the early days of the pandemic and has become the dominant lifestyle across all income categories,” said Anouj Nayar, Financial Health Specialist at LendingClub. “As inflation like we haven't seen in a generation takes more than our daily wages, Americans, thanks to income and credit ratings, are increasingly relying on credit products just to survive. That's why the financial services industry needs to offer the best tools to help fill the gap."
A study by PYMNTS found that monthly salaried consumers who had no problems paying their bills had an average credit score of about 694, while consumers who struggled to pay their bills each month had a lower-than-average credit score of 613. All consumers who pay monthly have a score of 664, which is more than 90 points lower than the average score for consumers who do not pay monthly.
At the same time, the gap between the average credit ratings of consumers with low and high incomes is less than 90 points. Consumers earning less than $50,000 report a credit score below the average of 648, while those earning more than $100,000 report a credit score above the average of 734. The data also shows that consumers experiencing financial difficulties tend to check their credit history more often. Of those consumers who have trouble paying paycheck-to-paycheck bills, 20% checked their credit score 24 hours before the PYMNTS survey compared to 9% of consumers living paycheck-to-paycheck with no bill-paying problems. The report goes on to note that the number of credit card holders remains high, with 63% of respondents representing all financial walks of life claiming to have made credit card payments in the past 90 days.
Paycheck-to-paycheck consumers are three times more likely to revolve credit card debt and generally have higher monthly balances. Those consumers who never pay their credit in full also tend to have more credit cards than the average. PYMNTS research shows that 29% of credit card holders "always" or "usually" change their balances. On average, credit card holders have about two credit cards, which goes up to three credit cards who are unwilling to pay their credit card in full (i.e., the ones they "always" or "usually" have a revolving balance ).
Additionally, the data shows that over the past six months, the average monthly balance of those who always transferred their balance to a credit card was three times higher than the average of those who always paid in full. Struggling consumers also tend to almost fully hit the average credit card spending limit of $4,700 with an average balance of $3,800. Monthly salaried consumers who struggle to pay their bills report spending an average of $3,100, with a limit of $6,500. Consumers who don’t live on paychecks report spending an average of $2,100, with a cap of $9,000. Many consumers who pay monthly are still creditworthy, have good credit scores, and tend to use personal loans, credit cards and other payment methods such as personal loans to manage their cash flow.
Source: LendingClub