Why Have Credit Scores Increased During the Pandemic?

Despite an ongoing pandemic, the average FICO® credit score hit a record high of 711 in July — a five-point increase from 2019. That might seem counterintuitive as millions of people are struggling to pay bills on time. But don’t think about the average credit score as a predictor of where the economy is headed, instead, take it as an indicator of where it was. 

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A few driving factors have caused credit scores to go up during the pandemic. Though keep in mind, the effects of the coronavirus pandemic largely have not started to show up on consumers’ credit reports, but they will soon. Credit scores have steadily been increasing over the past decade.

Here’s why the average credit score has gone up

Consumer debt has decreased

The amount of debt you have accounts for 30% of your credit score score. During the pandemic, we’ve experienced historical drops in credit card debt. In July, consumers had $6,004 in credit card debt on average, dropping from the $6,943 in January 2020. Whether because of limited opportunities to spend or intentional cutbacks, people are taking on less debt, which improves their credit scores. 

Missed payments are down

Paying your bills accounts for 35% of your overall score, so staying up-to-date is crucial. Before COVID-19, 8.1% of people had a 90+ day past due payment within the past 6 months. This number dropped to 7.3% in July, which can partially be attributed to government coronavirus relief.

“Banks and credit unions are working with consumers to avoid delinquencies, such as by offering skip-pays, loan modifications, deferments, forbearances, and other means to allow consumers to avoid negative impacts to their credit scores,” says CUNA Senior Economist Jordan van Rijn. 

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“Nearly 95% of credit unions are offering loan modifications. In addition to allowing consumers to avoid delinquencies and charge-offs, these efforts free up cash flow for households to pay down credit card debt or past-due bills,” Rijn adds.

Credit scores are slow to adjust

The pandemic has not caused credit scores to increase. As it turns out, credit scores are slow to react to major economic changes. The impacts take a considerable amount of time to show up. Take the Great Recession as an example. The average credit score didn’t plummet to its lowest point until 2009 –– nearly a year later. 

[ Read: The Simple Guide to Building Credit ]

Rijn says that the current spike in credit scores is unlikely to last, though a government stimulus package would prolong things. The longer Americans wait for relief, the more damage their credit scores will take. 

“It now appears that progress will not come until after the election or perhaps even later. That would mean several months in which millions of consumers are out of work without receiving extended unemployment benefits or additional direct stimulus payments,” Rijn adds.

Experts Cited

Jordan van Rijn

Senior Economist , Credit Union National Association (CUNA)

Jordan van Rijn is Senior Economist for the Credit Union National Association (CUNA) and Associate Lecturer at the University of Wisconsin-Madison’s Department of Agricultural and Applied Economics. He has 10 years of experience in international development, microfinance, and economic research in Latin America, Africa, Southeast Asia and the United States. Jordan conducts statistical and economic analysis to support CUNA’s advocacy efforts.

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