Credit Health during the COVID-19 Pandemic

• Credit scores improved, and the typical score is now prime for residents living in majority-Black and majority–Native American communities. The median credit score for all adults with a credit record was 709 in August 2021, compared with a median credit score of 693 in February 2020. About 1 in 5 (20 percent) adults with a credit record had a subprime credit score in August 2021. This improved from February 2020, when 25 percent had a subprime credit score. Notably, the median credit score for residents living in majority-Black and majority–Native American communities improved nearly 30 points since the beginning of the pandemic and brought the median credit score into the prime range. More residents may benefit from lower borrowing costs and have more options in the event that they need credit.
• A smaller share of residents carried past-due debt. About 28 percent of adults with a credit record had debt in collections in August 2021, a slight decline from February 2020 when about 30 percent had debt in collections. 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 February 2021, 4.9 percent of adults with a credit file had used alternative financial service loans like payday loans, an increase from 4.4 percent in February 2020. About 9.5 percent of people with alternative financial services loans were 30 or more days delinquent in February 2021, compared with 11.5 percent in February 2020.
• 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 nonbank borrowing at least 1.5 times higher than rates in majority-white communities.

• Expand access to affordable health care by expanding Medicaid and increasing subsidy amounts or eligibility ranges for plans purchased on health insurance marketplaces to decrease medical debt in collections and reduce other hardships.
• Provide income supports through tax credits or direct cash payments to help families pay for necessities or pay off debts.
• Provide wealth-building solutions such as baby bonds to reduce racial disparities.
• Provide financial coaching and counseling to help residents manage their debt and daily finances and build credit scores.
• 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 matched 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, low-cost loans or other emergency cash assistance, and financial coaching.