Has the pandemic hurt your credit score?


If your credit score has gone down over the past two years, it might be tempting to blame the COVID-19 pandemic. But based on the available data, the pandemic may not have played such a big role.

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In fact, average credit scores in the United States have gone up rather than down for much of the pandemic. From the third quarter of 2020 to the third quarter of 2021, the average FICO score in the United States rose four points to 714, according to data published in the spring by Experian.

A separate Urban Institute study, also released this year, found the median credit score of all adults with a credit history was 709 in August 2021, the most recent data available. That compares to 693 in February 2020, before COVID-19 began its rapid spread across the country. About 20% of adults with a credit history had a subprime credit score in August 2021, up from 25% in February 2020.

Meanwhile, chargebacks for credit card accounts actually declined in the first year of the pandemic, according to research released in early 2021 by the National Consumer Law Center.

The main reason credit scores have improved even in the face of business closures and rising unemployment is that credit card usage rates have declined during the pandemic, according to a Federal Reserve report. Bank of Boston. Credit usage is the percentage of the amount of credit you owe against your total credit limit for all cards and loans.

“This effect is most visible for households with the lowest credit scores,” the report said. “These households experienced the largest increases in credit scores and the largest declines in credit card use.”

One reason credit utilization ratios may have plummeted during the pandemic is that many Americans have used federal stimulus checks to pay off debt. This could help explain why households with lower credit scores saw larger increases than households with high credit scores.

Another factor was this: during the long periods of the pandemic, there just wasn’t a whole lot to spend money on, especially in terms of discretionary purchases. Many stores and restaurants have been forced to close during the COVID-19 shutdowns, and travel has come to a near halt. With nowhere to put their money, many Americans use it to save or reduce debt.

All of this means credit ratings could weaken now that pandemic restrictions have been lifted and the economy has reopened. The hospitality industry – hotels, airlines, restaurants and others – has seen a surge in business this year compared to pandemic figures. This means that many consumers are increasing their credit card bills.

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The wild card is the impact of high inflation and an impending recession on spending going forward. If consumer confidence drops, there could be a stabilization in spending, experts say, which would likely have a positive impact on credit ratings.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who has previously held positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work has also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal, and Business North Carolina magazine. He holds a BA in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting has earned him awards from the North Carolina Press Association, Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A North Carolina native who also writes fiction, Vance’s short story “Saint Christopher” placed second in the 2019 Writer’s Digest short story competition. Two of her short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. Her first novel, Voodoo Hideaway, is published in 2021 by Atmosphere Press.

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