In what should come as a surprise to nobody in the accounts receivable management industry, the average credit scores for consumers increased during the pandemic, according to a report released last week by the Consumer Financial Protection Bureau. While the report cited mortgage forbearance agreements, pauses on repaying student loans, and stimulus packages from the federal government, it’s what those funds were used for — paying down old debts, in many cases — that improved consumers’ credit scores during the pandemic.
For example, 43% of consumers with subprime credit scores moved up at least one tier during the pandemic, compared with 37% who did so during the 10 years prior to the pandemic.
Of consumers who had subprime credit scores (between 580 and 619) 12 months before the pandemic, 30% had moved up to near-prime during the pandemic and 11% had moved up to having a prime credit score. That compares with 28% who moved up to near-prime and 8% who moved up to prime before the pandemic hit.
Such a marked increase in credit scores is one reason why credit was so widely available during the pandemic, the CFPB mentioned in its report. But the impact of inflation and rising costs might be too much of a burden on consumers, even those with higher credit scores.
It will be interesting to see what happens now that the pandemic has subsided, inflation has become more of a concern, and forbearance plans have come to an end. Will consumers be able to maintain their improved credit scores or will they go back to where they were before the pandemic?