Americans Fear Their Credit Won’t Recover, Even If the Economy Does.

Americans Fear Their Credit Won’t Recover, Even If the Economy Does.

September 3, 2020         Written By Heaven Speirs

The effects of COVID-19 were originally projected to last a couple of months, but the pandemic has now impacted half of 2020. With no official “end” in sight, many Americans are starting to fear for their financial futures.

According to the Credit Impact Report from Finicity, 55% of Americans have experienced job or income loss because of COVID-19. A staggering 95% of those affect worry that their credit won’t recover after the pandemic, even if the economy does. If the current health crisis has left you with credit anxiety, there are steps you can take to protect your credit during the outbreak.

Lower Income Households Are More Likely to Struggle Paying Bills

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Finicity found that families with incomes of $50,000 or below were much more likely to struggle with bill payments during the coronavirus pandemic. Nearly three-quarters (73%) of respondents making $50,000 or below said they had a hard time keeping up with their bills. Comparably, that number dropped to 57% for households earning between $50,000 and $100,000 annually and 54% for those earning $100,000+.

A study from May revealed similar concerns, with 56% of respondents saying they weren’t sure how they were going to cover their bills. Bill pay by credit card doubled at the beginning of the pandemic, with one-third of Americans charging monthly bills to their credit cards. This may have been more precautionary than anything else since many workers were unsure when their income would resume. Nevertheless, this shows just how long consumers have feared for their financial security.

Americans Are Urging for Different Credit Criteria

Because of concerns about credit recovery, 82% believe the credit review process should be updated so responsible borrowers can prove their creditworthiness. For instance, a person who has persistently been a ‘transactor’ may have turned into a ‘revolver’ during the pandemic. A transactor is a person who pays off their credit card balance in full each month, compared to a revolver that carries a balance into the next month. Transactors tend to have better credit scores because they have low credit utilization rates – a factor that represents 30% of a FICO credit score.

The good news is that an updated credit rating system is already in place. The Fair Isaac Corporation unveiled the FICO Resilience Index back in July, primarily in response to the pandemic. This scoring model is based on years of financial data from before and after the Great Recession. FICO pinpointed behaviors that were linked to financial resilience to create a scoring system for economic crises. Consumers with credit profiles matching resilient consumers during the Great Recession will receive a low resilience score, while less promising profiles receive a high score. The Resilience Index ranges from 1-100.

Financial Habits to Protect Your Credit

If you’re worried about credit recovery, focus on the debt you already have. Make at least your minimum payments on time every month, and avoid new debt as much as possible. If you can afford to pay more than your minimum payments, do so. If you’re overwhelmed by high credit card fees, consider applying for a new credit card instead. You can use the Low Cards Credit Card Selection Tool to find credit card offers that align with your needs. Also, check out our helpful guide to learn How to Prepare for the Long-Term Financial Impact of COVID-19.

 

 

The information contained within this article was accurate as of September 3, 2020. For up-to-date information on any of the terms, cards or offers mentioned above, visit the issuer's website. Many of the offers on this article are from our affiliate partners, and LowCards.com may be compensated if you take action with any of our affiliate partners.

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heaven

About Heaven Speirs

Heaven Speirs is a contributing writer for LowCards.com. She remains up-to-date with the latest developments in the credit card industry and the financial sector as a whole. Heaven has over 10 years of experience in online journalism, the bulk of which has been focused on personal finance. Heaven attended Oklahoma State University, where she discovered her talent for research and content creation. In her spare time, Heaven enjoys painting, playing poker, and spending time with her husband and three dogs.