Data sets that auto lenders typically use to determine who is creditworthy have been upended by the fallout of the coronavirus, consumer credit experts say. As a result, lenders concerned with loan losses and fraud have clamped down on access for customers they believe pose more risk to their business. Subprime customers, with credit scores typically below 620, especially are having a harder time getting approved and dealers say that customers on unemployment are being rejected out of hand. To make matters worse, sorting through the confusion prompted by massive job losses and unprecedented federal intervention could take years for lenders as the industry struggles to compete in a market with wild swings in supply and demand. This means over the long term that lenders could increasingly be exposed to potential losses and limited in taking on new business while they grapple with who is creditworthy. The federal government's pandemic provisions protect consumer credit scores, preventing lenders from counting negative information against potential customers. Credit standards remain tight as lenders navigate the uncertain circumstances sparked by the pandemic. Credit tightening for subprime borrowers began in April and continued into May, said Jonathan Smoke, chief economist at Cox Automotive, noting declining approval rates for automotive loans and the shift in credit distribution toward those in higher tiers. Subprime consumers made up 8.8 percent of the market in May and June, Smoke said, citing Equifax data. That's down from 14 percent May and June of 2019. "You're particularly making it more difficult and less attractive for subprime people to get a loan," Smoke said. "You're limiting nearly a quarter of consumers."
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