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Credit Health during the COVID-19 Pandemic

How is your community faring on credit health measures?

The COVID-19 pandemic disrupted finances for families across the United States. To understand how the pandemic and the economic response influenced credit health—people’s credit scores, debt delinquencies, and borrowing—we examined credit bureau data in February 2020 and the following months.

Key measures of credit health have improved since February 2020, but many families and communities still face financial challenges. Racial disparities in credit health reflect historical inequities that reduced wealth and limited economic choices for communities of color.

The trends since February indicate that policymakers’ and private-sector partners’ actions to help families weather the financial impacts of the pandemic have made a difference. However, credit indicators in October show that many families still face barriers to financial health. Additional supports are necessary to sustain improvements and help struggling families.

Median credit scores reveal persistent racial disparities

  • All communities
  • Black
  • Hispanic
  • Native American
  • White

Source: Tabulations of Urban Institute credit bureau data.
Notes: Credit scores are Vantage scores that range from 300 to 850. The communities listed in the key refer to zip codes where more than 60 percent of residents are Native American or in the respective racial or ethnic group.

Credit plays a vital role in families’ abilities to weather financial disruption and access assets and education, but it does not tell the full story of financial health. Credit data cannot capture the experiences of about 1 in 10 US adults who do not have a credit file, a disproportionate amount of whom are people of color. And although credit health appears to have improved for all groups during the pandemic, racial gaps have not narrowed.

Majority-Black communities and majority-Native American communities have the lowest median credit scores and the highest debt in collection rates, subprime credit score rates, and use of high-cost payday and other Alternative Financial Services (AFS) loans. These racial disparities reflect historical inequities that reduced wealth and limited economic choices for communities of color.

Our data dashboard provides a timeline of these and other measures to show how the pandemic has affected residents’ credit health at the county, state, and national levels. How are the residents of your state or county faring?

February 2020April 2020June 2020August 2020October 2020

Share with a subprime credit score October 2020

  • 22.4% United States

    Source: Tabulations of Urban Institute credit bureau data.
    Notes: NA = “Not available.” Data for this location are not available because the sample size is too small. Detailed race data are not available for communities that are too small. See the “About the Data” section for an explanation of how we define communities of color and majority-white, Black, Hispanic, and Native communities.

    Share with a subprime credit score in the United States

    All
    Native American communities
    Black communities
    Hispanic communities
    White communities
    February
    AllNative American
    Black communitiesWhite communities
    Hispanic communities
    United States
    State
    County
    County communities of color
    County majority white counties
    February
    United StatesCounty communities of color
    StateCounty majority white counties
    County

    Source: Tabulations of Urban Institute credit bureau data.
    Notes: NA = “Not available.” Data for this location are not available because the sample size is too small. Detailed race data are not available for communities that are too small. See the “About the Data” section for an explanation of how we define communities of color and majority-white, Black, Hispanic, and Native communities.

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    Key Findings

    How October 2020 credit health data compare with February 2020

    Several credit health measures improved during the pandemic, but many families and communities still face financial challenges.

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    • Credit scores improved. The median credit score was 704 in October 2020, compared with a median credit score of 693 in February 2020. About 1 in 5 (22 percent) adults with a credit record had a subprime credit score in October. This was an improvement from February when 25 percent had a subprime credit score.
    • A smaller share of residents carried past-due debt. Nearly 1 in 3 (29 percent) adults with a credit record had debt in collections in October 2020, about the same as in February 2020. The share of borrowers with past-due debt declined for those borrowing student loans, credit card debt, auto and retail loans, and mortgages.
    • Alternative financial services loan (e.g., payday loan) use shows signs of financial hardship. In October, 4.8 percent of adults with a credit file had used alternative financial service loans like payday loans, an increase from 4.4 percent in February. About 9.4 percent of people with alternative financial services loans were 30 or more days delinquent in October, compared with 11.5 percent in February.
    • Racial disparities in credit health reflect historical inequities that reduced wealth and limited economic choices for communities of color. The credit health of major demographic groups improved during the pandemic, but gaps have not narrowed. Majority-Black, Hispanic, and Native American communities experience rates of subprime credit scores, debt in collections, and high-cost AFS borrowing at least 1.5 times higher than rates in majority-white communities.

    Policy options

    COVID-19 created financial challenges for families across the US. Federal, state, and local policymakers responded with supports to help families weather the pandemic’s economic fallout. Some of these supports should be sustained and strengthened. State governments play a significant role in distributing federal resources, filling gaps in the federal response, and enacting consumer protection regulations.

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    Policymakers could take the following actions:
    • Keep health care as accessible as possible by opening special enrollment periods, negotiating out-of-pocket costs for COVID-19 testing and treatment, and encouraging or requiring premium payment relief.
    • Continue providing relief on utility bills by halting shutoffs, easing late fees, and using deferred payment plans like arrearage management.
    • Provide relief from banking fees by limiting ATM, overdraft, and credit card late payment fees.
    • Protect people from vehicle repossession by placing moratoriums on repossession and encouraging financial institutions to offer relief.
    • Expand access to affordable health care by expanding Medicaid to decrease medical debt in collections and reduce other hardships.
    • Ensure auto loans are affordable and viable. State regulators can look for disparities in lending practices across communities and consider additional consumer protections.
    • Encourage savings by relaxing asset limits on safety net programs to increase household savings and participation in mainstream financial markets. Also, incentivize savings with programs like individual development accounts and child savings accounts to help families build emergency savings and wealth.

    Employers can also support their workers’ financial health. Employers could explore benefits that help employees maintain financial stability, including health insurance, emergency savings incentives, and low-cost loans or other emergency cash assistance.

    What is credit health?

    Credit scores affect people’s ability to borrow, influencing people’s ability to buy a home or car or pay for emergency expenses. Credit can be vital to families who need to smooth their expenses until the next paycheck or pay for an emergency expenditure like a medical visit or car repair. Without access to credit—and preferably prime credit—many Americans with low incomes are stymied on their path to success.

    The financial cost is high for the 22 percent of Americans in the credit system who have subprime credit. When they seek to borrow, subprime borrowers often only qualify for the highest interest-rate loans. Debt payments may constitute a large share of their income. Borrowers with subprime credit scores can pay nearly $400 more in interest for a $550 emergency loan over 3 months, and $3,000 more in interest for a $10,000 used-car loan over 4 years compared with borrowers with prime credit scores.

    National emergency is declared for the COVID-19 pandemic, first statewide shutdowns take effect, and economic relief bills are enacted
    Jobless rate hits a peak of 14.7 percent and first stimulus checks go out
    The US Centers for Disease Control and Prevention issues a national eviction moratorium