Credit may not be top of mind for many consumers these days. But as the pandemic and its associated economic woes drag on, they may want to give it some attention.
The good news is that consumers, by and large, improved their credit profile during the pandemic, despite record unemployment and massive business shutdowns.
The support programs that were put in place worked. Helped by federal stimulus payments, expanded unemployment benefits, lender relief agreements and a shift in habits, Americans used less credit, paid down debt, made fewer late payments and improved their credit scores. The average FICO credit score was 711 in July, up 5 points from a year earlier, according to Fair Isaac, the company behind the score. A FICO score runs from 300-850 and is one of the most widely used metrics to determine a consumer's credit worthiness.
“It definitely feels like many consumers have taken a cautionary step in terms of saving and spending,” said Matt Komos, Vice President of Research and Consulting at credit reporting agency TransUnion.
The bad news is consumers' financial health could be heading for a downturn soon. Some relief measures are expiring or have concluded, Congress has yet to reach agreement on a new relief package; meanwhile the job market and economic recovery remain fragile.
Credit profiles don't yet reflect those developments. There's typically a lag between a major economic event and when it's reflected in the credit files of Americans.
For example, during the Great Recession, the average national FICO score didn't hit its lowest point until late 2009, months after the recession officially ended, wrote Ethan Dornhelm, vice president of FICO Scores and Predictive Analytics, in a blog Monday.