Credit may not be the priority for many consumers today. But as the pandemic and its associated economic problems drag on, they may want to give it some attention.
The good news is that consumers, in general, improved their credit profile during the pandemic, despite record unemployment and massive business closures.
The support programs implemented worked. With the help of federal stimulus payments, expanded unemployment benefits, creditors relief agreements and a change in habits, Americans used less credit, paid debts, made less late payments and improved their credit scores. FICO’s average credit score was 711 in July, up 5 points from the previous year, according to Fair Isaac, the company behind the score. A FICO score ranges from 300-850 and is one of the most widely used metrics to determine a consumer’s creditworthiness.
“It definitely looks like a lot of consumers have taken precautionary measures in terms of savings and spending,” said Matt Komos, vice president of research and consulting at credit reporting agency TransUnion.
The bad news is that consumers’ financial health may be in crisis soon. Some relief measures are expiring or have been completed. Congress has not yet reached agreement on a new relief package; meanwhile, the labor market and economic recovery remain fragile.
Credit profiles do not yet reflect these developments. There is usually a lag between a major economic event and when it is reflected in Americans’ credit files.
For example, during the Great Recession, the national average FICO score did not reach its lowest point until the end of 2009, months after the official recession ended, wrote Ethan Dornhelm, vice president of FICO Scores and Predictive Analytics, in a blog on Monday.