Halloween is the time of year when we love to tell stories about things that go bump in the night. But many Americans are losing sleep year-round over financial fears related to debt, expenses and retirement. Our research indicates that individuals with non-prime credit scores (lower than 700), in particular, face a host of scary financial situations on a regular basis, including:
- Unexpected expenses
Non-prime Americans report that an unexpected expense (such as a medical emergency, household or car repair, etc.) that amounts to more than 31% of their monthly household income would cause a significant disruption to their finances. In terms of dollars and cents, it would only take an expense of $1,400 to qualify as a crisis for these individuals. Considering that the average cost for common yet unpredictable expenses like a new transmission ($2,800) or a broken arm ($2,500) easily exceeds this threshold, and that half of non-prime Americans experience three or more of these disruptive events in a year, it’s easy to see why unexpected expenses are a source of anxiety (read more: Non-prime Americans: The Scourge of Unexpected Expenses).
- Limited access to credit products
Lack of access to credit, from basic credit cards to bank loans for large purchases, can have alarming consequences for Americans with non-prime credit scores. Only a third are confident that they could secure a personal loan from their bank if they needed it, perhaps because they are four times as likely as prime Americans to have been denied a loan within the last year. Instead, one in five non-prime Americans reported that they had borrowed money from a friend or family member in the previous 12 months--which in and of itself can be a scary situation for both borrower and lender.
- Financial instability within marriages
More than half of non-prime Americans surveyed reported that their incomes fluctuate from month to month. Among married couples, a spouse’s job insecurity can mean greater worries for everyone in the home who relies upon their income. Alarmingly, married Americans with non-prime credit scores are twice as likely to have lost a job sometime in the last 5 years as married Americans with prime credit scores.
In addition to struggling more frequently with job-related financial instability, married non-prime Americans report being less confident in their own abilities to manage their finances than single people with similar credit scores. Only 41 percent of married non-primes characterize themselves as being “good at dealing with day-to-day financial matters,” compared with 56 percent of single non-primes. Overall, Americans with prime credit scores are much more likely to have confidence in their financial skills: 71 percent of married primes and 73 percent of single Americans with prime scores said they were good with money (read more: Financial Management in Marriage: The Non-prime Experience).
- Family money hazards
Americans with non-prime credit scores aren’t just affected by their partners’ financial worries. Limited access to credit means that non-prime Americans more commonly rely on friends and family members for financial support. Unfortunately, it is fairly common for family members not to pay back loans from parents or other relatives in full.
But for those who recruit family members to be co-signers or guarantors on loans, leases, or other financial contracts, there is also a real danger that failure to meet their financial obligations can have ramifications for their loved one’s credit and financial health. And well-meaning family members who act as co-signers may or may not realize the extent to which the arrangement could pose a threat to their own financial stability--not unlike a character in a horror film who realizes too late that the menacing phone calls she’s receiving are coming from inside her own house.
Americans regardless of credit score may get a kick out of horror stories, shows or movies this time of year. But the experience is less thrilling for those for whom these scary stories are common reality. It’s imperative that our financial services providers, legislators and industry innovators ban together to address these needs and protect our country’s most fragile consumers. Learn more about our mission by clicking “About” in the above header.