Credit Scores Are Up Despite the Economic Challenges Over the Past Year

But there are a couple of considerations when evaluating the overall credit picture of many Americans.

Credit-Scores-Are-Up-Despite-the-Economic-Challenges-Over-the-Past-Year

After a year into the pandemic, record-high unemployment last year, and economic uncertainties, most would expect that credit scores would be lower than ever. But, nothing could be further from the truth.  

According to FICO, the average credit score in the U.S. last July was a record high of 711. But that doesn’t necessarily mean that everyone with a credit score over 700 has been paying their bills on time.

Consumers have indeed been saving more and paying their debts down more than ever. It’s also the case that many of them are refinancing their loans to benefit from low-interest rates or consolidate their loans and pay down past due debts. While that has helped some credit scores, the fact is that some loan payments have been paused. This is especially the case for federal mortgages and student loans. On paused loans, credit reports will show the loans as current, even when borrowers are missing recent payments.

Part of the COVID-19 federal relief measures included pausing some loan payments. Stimulus checks also helped some Americans catch up on payments. But the measures were temporary, and the problem could be that once Americans have to enter back into repayment, some might have a hard time catching up.

Rod Griffin, Experian senior director of public education, said: “While the signs are positive, we are cautiously optimistic in light of the economic uncertainties created by the pandemic.”

Transunion’s Matt Komos, VP of research and consulting, agrees. “On the surface, the consumer credit market is performing well. Serious delinquency levels remain near record lows. However, the performance of those accounts still in accommodation will help shape the true consumer credit picture. With many accounts expected to come out of accommodation between March and May, most notably mortgage accounts, we will soon see the true impact of those programs for both consumers and the credit marketplace.”

Komos also said that borrowers should reach out to their lenders to discuss the challenges they may feel when they have to start paying back their loans.

“We always encourage consumers, if they are getting into a challenging spot, be proactive and reach out. Don’t wait.”

Komos hinted that lenders will often work with borrowers who are proactive.

The U.S. government has moved to extend the federal student loan payment pause through September while also extending mortgage forbearances through June. Meanwhile, unemployment assistance has been extended to March 14, and any workers who haven’t exhausted their benefits will have help until April 11.

But Howard Dvorkin, Debt.com’s chairman of financial education, alluded that consumers get groomed to not paying those missed payments. He also said, “By next fall, I have to imagine that there is going to be a tsunami of people needing debt relief.”

Dvorkin’s advice is that consumers curb their spending and avoid new credit card purchases. He then said borrowers who do have extra cash should pay off high-interest rate loans first.

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