Why Consumers’ Credit Scores Are Hurting Due to Covid-19
Back in July of 2020, TrueConnect completed a survey that consisted of 698 HR professionals. Just under 60% of those surveyed stated that they have struggled financially more than usual this year.
The top three reasons for this were:
- Unplanned expenses
- A spouse/partner lost work
- The person surveyed lost work or suffered a pay cut
Clearly, it’s not just unemployment that is causing financial struggles during this pandemic. Covid-19 has brought unprecedented financial effects in 2020 that impact more than just employment…
This pandemic has had major impacts to credit scores across the nation and has affected the overall ability to make better financial decisions in the future.
How Does it Impact Credit Scores?
Credit scores are based on an individual’s recent financial history. Credit agencies will look at factors such as:
- Debt to income ratio
- The available balance on credit cards
- Late or missed payments
- Any previous loan applications
Due to Covid-19, all of these values could be all out of sorts. Debt has grown and credit card balances are higher. Late or missed payments are becoming more frequent despite some of the relief being provided by lenders.
With the CARES act, lenders are required to report your current financial standing which may be nowhere near as great as it was pre-pandemic. As MarketWatch covers, the CARES act does have some protections for borrowers, such as allowing you to ask lenders to add a code to your credit report indicating you were affected by a natural or declared disaster.
Unfortunately, this won’t be taken into account when determining your credit score, but future lenders will see the code and be able to take that part of your payment history into consideration.
For the most part, though, the pandemic has negatively impacted many Americans credit scores.
How to Protect Your Credit Score?
There are a few key ways you can protect your credit score during these troubling times:
Pay what you can
Whenever possible, pay as much or as little as you can each month to all of the loans or debts you have outstanding. If you can pay at least the minimum (for example: with credit cards, the minimum is typically around $35) per month, it will show that you are dedicated to paying off your debt rather than letting it accrue.
Stay up to date on your credit reports
There are many different sites that allow you to check your credit for free without hurting your credit score. You are entitled to a free copy of your credit report every 12 months from each of the three nationwide credit bureaus! (You can find the link here)
Add a consumer statement to your credit report
Did you know that you’re allowed to add statements up to 100-words to your credit reports to explain your financial situation? While this won’t solve your credit, these updates will help create a better picture of what happened this year.
Budget and keep the sheet nearby
Take a look at how much money you’re making and spending monthly, as well as weekly. Write this down on your computer or on a physical piece of paper and create a budget based on your spending goals. Keep this close to you so that you can stay accountable for your goals.
Ask for help
Never be afraid or embarrassed to ask for help. Employers can offer financial wellness benefits that help you to pay back your debt and increase your credit score overall. Ask your employer about TrueConnect-the only small-dollar loan provider that does not require a credit score to apply and be approved.
Are There Long-term Credit Effects of the Pandemic?
In July of 2020, the FICO credit score hit a record high of 711 in the U.S. Contrary to what we have been discussing, this seems to look great for consumers’ credit!
However, as covered in a CNBC article, it was stated that: “The FICO score shouldn’t be thought of as a leading indicator or as a predictor of where the economy is headed. In fact, there’s typically a “bit of a lag” between when a major macroeconomic event occurs, such as a recession, and when the average FICO score is going to reflect that.”
In short, we likely won’t see the major effects of Covid-19 on our credit economy until later in 2021 or even beyond.
Therefore, it begs one question: what will this do for our collective credit scores and the ability to make a sound financial decision?
Considering that over 40% of individuals wish they could have a fresh financial start, the future has never looked shakier.
To learn more about TrueConnect’s patented financial wellness program with no credit check loans that cost employers nothing to implement and manage, contact TrueConnect today.