Here's what the growing gap between Americans with good and bad credit says about the economy

MW Here's what the growing gap between Americans with good and bad credit says about the economy

Andrew Keshner and Venessa Wong

The K-shaped economy is now showing up in the divide between credit-score 'thrivers' and 'strivers'

Americans' credit scores are on a diverging path.

There's a growing divide between the country's least risky borrowers and its most risky ones. Or to put it another way, the people who can easily borrow money and those who are cut off from credit.

The K-Shaped economy that tells different stories on Americans' spending habits - with wealthier households continuing to spend while lower-income people pull back - is now showing up in their credit scores.

Since 2022, the middle ground of people with prime credit scores (661 to 720) has narrowed by almost two percentage points, TransUnion (TRU) said. Many have improved their scores - over 40% of people had "super prime" credit scores (at least 781) at the end of last year, climbing from 38% at the end of 2022. Yet the share of consumers with subprime scores (600 and below ) also increased one full percentage point, to almost 15% of the consumer credit market.

"The middle part is vulnerable," Michele Raneri, vice president and head of U.S. research and consulting at the credit reporting company, told MarketWatch. While some of these households have become more financially stable, in other cases, "they're coming down from the middle."

The gap in overall financial well-being between super prime and subprime has now "surpassed" 2019 levels, Raneri noted. Since then, people at the lower end of the credit-score spectrum (subprime and near-prime consumers) have piled up much more non-mortgage debt relative to their income than people with pristine credit (super prime) have.

"Super prime consumers generally remain well positioned to manage affordability challenges, while those in non-prime risk tiers face growing stress as required payments consume an increasing share of their income," Raneri said in a statement.

Other credit bureaus are noting a similar hollowing out of the middle. "A widening gap defines the economy," said Equifax $(EFX)$, using financial criteria that included credit scores. High-stability "thrivers" - those with strong assets, strong spending and high, stable credit scores, grew by 32% since 2023, while "strivers" - people with high debts and little savings - also increased by 11%, according to a recent Equifax report.

"Households are moving in opposite financial directions simultaneously," Equifax wrote, noting that baby boomers "continue to lead in consistent stability" while a "significant portion" of Gen X was being impacted by the 'silent squeeze' of rising essential costs."

Credit scores aren't just numbers. Because they are a baseline on the borrowing costs for mortgages, car loans, credit cards and other forms of credit, they can amplify a person's financial wellness or financial strain.

At a time when expensive oil prices may keep interest rates higher for longer, the diverging scores are going to make it tougher for people who are already stretched thin. Credit scores don't always correlate with incomes, but a larger income can help borrowers stay current on their bills and build their credit score.

The bright side is that overall, U.S. consumers so far are managing their debts better than they were before the pandemic. There are 15 million more people with elite credit scores of at least 781 compared to 2019, according to TransUnion, compared to 1.5 million more with the lowest scores.

This is due to a number of factors: Many people who owned their homes before COVID took the opportunity to refinance their mortgages at record-low rates, according to Experian, which may have added breathing room to their monthly budgets.

And while the low-hire, low-fire labor market has left fewer opportunities for workers to move up, unemployment has also been low, allowing those who kept their jobs to cover expenses, including their debt payments, which has become harder as prices rise.

"While it appears that some consumers are being stretched by higher prices, and have certainly expressed dissatisfaction in recent months, consumers overall aren't yet breaking - but they may be bending a bit," Experian (EXPGY) said in a January report.

Those whose credit scores have worsened in the post-inflation economy are showing signs of being left behind.

Most consumers feel the sting of inflation, but when you consider their debt-to-income levels, "the lower end of the 'K' is much more stressed today than they were in 2019," TransUnion's Raneri told MarketWatch.

There's already evidence that more people with low scores aren't even bothering to try to get financing because they're expecting to be rejected. Researchers at the Federal Reserve Bank of New York call these people "discouraged."

Nearly three in 10 people with scores at or below 680 said they didn't apply for some form of credit in the past 12 months. That's roughly double the share of "discouraged" people with sub-680 scores as of June 2024.

On the other side, almost 44% of people with scores at 760 and above said they successfully applied for some form of credit in the past 12 months. That's up from almost 36% in June 2024.

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-Andrew Keshner -Venessa Wong

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May 04, 2026 17:53 ET (21:53 GMT)

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