One of the arguments being made against removing medical debt from consumers’ credit scores is that it will artificially inflate those scores and make it easier for consumers to get access to credit that they might not necessarily be able to repay. There is already evidence of the impact that this dynamic can have and we are seeing it right now, according to a published report. The COVID-19 pandemic also caused consumers’ credit scores to rise and many of those consumers started borrowing more money and are now having trouble repaying it.
The pandemic gave consumers access to stimulus funds at a time when interest rates were low and credit was widely available. Now, as interest rates are rising and inflation has impacted the price of many goods and services, delinquency and default rates are starting to climb, too. One analyst said that lenders were guilty of overestimating the creditworthiness of borrowers during the pandemic. The average consumer credit score has increased more than 10 points since the start of the pandemic.
The average monthly payment for an individual with a subprime auto loan has increased to $576 in 2024, from $446 in 2019. For an individual with a prime loan, the average payment is at $581, up from $471.
Consumers find themselves in a situation now that is similar to what they experienced back in the early 2000s, when many signed on for mortgages they were not able to afford. That led to the Great Recession in 2008 when the mortgage market imploded. On the plus side right now, the labor market remains strong so most consumers still have a job which gives them access to income to make their payments. But delinquency rates are expected to continue marching higher.
