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Feeling confident about your creditworthiness when looking to get a new credit card or a loan can make a world of difference, but the confidence level for non-prime consumers is down, according to a new study by Elevate's Center for the New Middle Class (CNMC). They found that two-thirds of people who fall in the non-prime category, meaning those with a credit score of less than 700†, were markedly less likely to use traditional financial institutions to get credit.
In fact, many headed to online banking venues to do their banking. Why? They felt that brick and mortar banks had not created products for them. For Elevate, these results brought home the fact that many Americans are caught in a credit crunch.
"Unfortunately, this study indicates what so many Americans experience every day. When faced with a hurdle in their financial journey, the non-prime simply do not have the option of relying on a bank or traditional financial institution as a backstop," said Jonathan Walker, Executive Director of the CNMC.
"Across the board, we see that the non-prime have little confidence a bank can provide for them, yet surprisingly most indicate a bank would still be their first choice for a personal loan," he added.
Non-prime Americans struggle
The study found that people in the non-prime category struggle more and that they are four times more likely to have been rejected for a loan during the past 12 months.
They are also eight times more likely to refrain from using a bank, and six times more likely to do their banking via financial institutions that only use an online model, rather than opting to visit brick and mortar banks.
They are also 21 percent more likely to believe that their bank has not created products with them in mind. Last but not least, when it comes to personal loans, they are 48 percent less likely to get approved if they move forward and actually apply for one.
Non-prime Americans also tend to experience income volatility, which means that having access to credit is something they need, whether that means getting a loan or a credit card.
Given all this data, it is not surprising that Elevate found that 1 in 12 of these Americans are not currently using a traditional financial institution to take care of their daily financial needs. They see going online as their best bet when it comes to getting their financial needs met.
Elevate believes that the loosening of regulations may help banks meet the needs of non-prime consumers. "For centuries, we have relied on banks to meet our financial needs-both big and small. Today, many Americans do not have that luxury. With the changing regulatory environment, banks may finally be able to serve this population again, either by partnering with financial technology companies, creating innovative new products or by finding new means of underwriting their financial products," said Walker.
The study by Elevate's Center for the New Middle Class was carried out from February 2, 2018, until February 5, 2018. During this time they spoke with 1,005 consumers in the United States. Among the respondents, 595 had prime credit scores while 298 had non-prime credit scores.