Millions of people are unemployed, food insecurity is on the rise, the economy is struggling and yet Americans’ credit scores are going up. The average FICO score hit 711 in July, an all-time high since the company started keeping track.
A big part of the reason for that? More people have been able to pay their bills on time and pay down debt, which has a positive impact on credit scores, according to Ethan Dornhelm, vice president of scores and predictive analytics at FICO.
“Consumers seem to be, at least thus far, weathering the storm brought on by the pandemic pretty well,” he said.
For many people, that’s only because of the stimulus checks and expanded federal unemployment benefits that came out of the CARES Act, and the fact that some lenders have also allowed people to temporarily defer payments on certain debts, according to Ted Rossman, an industry analyst with CreditCards.com.
“We’ve seen all this government stimulus, we’ve seen all these hardship programs, lots of people have mortgages and student loans in deferral or forbearance,” he said. “People are spending less, they’re making debt pay off a priority. That part helps your credit score.”
But the one-time stimulus checks are now long gone, the expanded federal unemployment benefits expired at the end of July and Congress is at an impasse on another coronavirus relief package, which means a lot of people are now running out of cash.
“If we don’t get additional assistance, another stimulus or more unemployment benefits, I am concerned that we’re going to see a lot of consumers unable to pay bills, unable to pay rent,” said Chi Chi Wu, a staff attorney at the National Consumer Law Center. “That will show up on credit reports.”
Credit scores are lagging indicators — it takes at least 30 days, often more, for missed payments to show up on a credit report. So right now, Wu said, “it’s sort of like sitting here waiting for the wave to hit.”
Many credit card companies, banks and other lenders are also anticipating that wave of missed payments and dropping credit scores, and have already become more wary of lending, according to Rossman.
“We know that credit card companies in particular have gotten really selective about who they’re approving these days … we’re also seeing stricter guidelines on income,” he said. “So even though the average FICO score is going up, it’s gotten a lot harder to access many types of credit.”
COVID-19 Economy FAQs
Pfizer said early data show its coronavirus vaccine is effective. So what’s next?
In the last few months, Pfizer and its partner BioNTech have shared other details of the process including trial blueprints, the breakdown of the subjects and ethnicities and whether they’re taking money from the government. They’re being especially transparent in order to try to temper public skepticism about this vaccine process. The next big test, said Jennifer Miller at the Yale School of Medicine, comes when drug companies release their data, “so that other scientists who the public trust can go in, replicate findings, and communicate them to the public. And hopefully build appropriate trust in a vaccine.”
How is President-elect Joe Biden planning to address the COVID-19 pandemic and the economic turmoil it’s created?
On Nov. 9, President-Elect Joe Biden announced three co-chairs of his new COVID-19 task force. But what kind of effect might this task force have during this transition time, before Biden takes office? “The transition team can do a lot to amplify and reinforce the messages of scientists and public health experts,” said Dr. Kelly Moore, associate director for the Immunization Action Coalition. Moore said Biden’s COVID task force can also “start talking to state leaders and other experts about exactly what they need to equip them to roll out the vaccines effectively.”
What does slower retail sales growth in October mean for the economy?
It is a truism that we repeat time and again at Marketplace: As goes the U.S. consumer, so goes the U.S. economy. And recently, we’ve been seeing plenty of signs of weakness in the consumer economy. Retail sales were up three-tenths of a percent in October, but the gain was weaker than expected and much weaker than September’s. John Leer, an economist at Morning Consult, said a lack of new fiscal stimulus from Congress is dampening consumers’ appetite to spend. So is the pandemic.
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