Challenging Assumptions About Consumer Deleveraging in the US

Conventional wisdom holds that US consumers have been deleveraging—either voluntarily or involuntarily—since the recession of 2008-2009. While there is ample evidence that many consumers have, in fact, been deleveraging for the past five years, does that mean that all consumer segments have done so?

The data indicates that one large segment of US consumers has not curbed its appetite for revolving debt in the wake of the recession. Consumers at the high end of the FICO® Score range—people with FICO Scores from 800 to 850—increased their revolving balances from 2008 to 2010 and again from 2010 to 2012.

As the chart above indicates, it isn’t just the 800-850 score range where consumers kept spending. Consumers in the 720-799 range essentially kept their revolving balances flat from 2008-2010 (there was actually a negligible decrease of just a few dollars per consumer) and then began hiking their revolving balances once again from 2010 to 2012.

Just as interesting is the fact that during this time when high-scoring consumers kept spending, lenders were actually making moves to reduce their risk exposure among these consumers. As the chart below indicates, from 2008 to 2010 lenders clamped down by making significant—some might even say dramatic—reductions in the credit lines of their highest-scoring customers.

These reductions were so significant that even as credit lines increased from 2010 to 2012, the average credit limit was still thousands of dollars below its pre-recession level.

This is a fascinating look at the dichotomy between the relatively optimistic perceptions that high-scoring consumers seem to have had about their own credit health and the much more cautious outlook held by many lenders. And back to my original point, these numbers indicate that at the upper end of the FICO® Score range, it was lenders who did most of the deleveraging, not consumers.