In a recent story, I discussed the newly created “surveillance score”, which uses your online profile as a sort of credit score on steroids. That story got me to thinking about credit scores more generally. What’s the impact of the pandemic on them? Just prior to the lockdowns, our credit scores were at record highs. our economy too. The average national credit score was 703. A good credit score. Clearly that’s not going to be the case with double-digit unemployment rates and less income earned by many who are still working. Because of policy decisions, like a moratorium on evictions in Florida during the pandemic, much of the typical data which would show the real state of our personal economy isn’t yet available. Once the moratoriums are lifted, it’s likely to be a short term shock to the system.
We do have an idea of where we collectively stand with our credit scores during the pandemic, however, based on payment data to lenders we can now infer an approximate 18% decline in credit scores for those carrying consumer debt, like credit card debt, personal loans, etc. Moreover, an approximate 3% decline for those with only secured debt, a mortgage for example.
Naturally, there’s a negligible impact on those without any debt. So, what does this translate to? An average, staggering, 126-point decline for those carrying regular personal debt heading into the pandemic. An average 21-point decline for those holding only secure debt. This emphasizes the value and importance of debt management. It’s clearly best to not take on more consumer debt than is necessary and to prioritize paying it off when possible. According to MyFICO, the average annual cost of bad vs good credit is currently $2,916. That’s the insult to injury for many holding consumer debts heading into the pandemic. On top of potential job loss, lower earnings, etc., life just became about $3,000 more expensive annually as well. That’s in addition to also losing access to many opportunities, which can include jobs, due to a lower credit score. Hopefully, there’s a quick recovery once the pandemic breaks.
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