How Covid Changed Americans’ Credit Behavior – Forbes Advisor

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Although the pandemic caused a sharp economic downturn, many Americans were able to save more and pay off their debts.


Forbes Advisors Staff

Update: April 27, 2021, 1:48 p.m.

Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but this does not affect the opinions or ratings of our editors.

When the Covid-19 pandemic took hold in March 2020, it ended the longest economic expansion in U.S. history. Large swathes of the economy in almost every industry have been affected, as businesses shut down or operated at a fraction of what they used to be.

Americans, many of whom experienced unemployment or significant financial losses for their businesses, were forced to reassess household spending and how they would pay their expenses. Read on for more information on how credit card behavior, including changing attitudes towards credit card debt and credit scores, has been affected since the inception of. the year.

Learn more about credit and credit scores

How revenues have been affected by the pandemic

There is a great disparity in how American households have been economically affected by the pandemic. According to a February 2021 survey by the Associated Press-NORC Center for Public Affairs Research, 53% percent of U.S. households have experienced a loss of income since March 2020 due to layoff, pay cut, or pay, less hours of work, unpaid time or quitting a job, with 25% of survey respondents unable to meet their financial obligations, including paying their bills.

But 68% of those polled also said they were able to cut spending, pay off debt, or save more. This incongruity, sometimes referred to as a “K-shaped” recovery, has permeated every aspect of Americans’ economic situation since the start of the Covid-19 crisis. This uneven recovery in the economy has meant that many low-wage workers, especially those in the service sector, may have been unemployed or seen their hours cut back over the past year, making up the downward part of the economy. “K”. But office workers and others who were able to switch to working from home without a pay break maintained their wages and may even have benefited from a robust stock market, which explains the rise in the “K”.

How payment behaviors have changed

The pandemic has been a boon to e-commerce, with millions of people changing their purchasing habits for everything from groceries to merchandise through an online platform. The estimate of e-commerce for the fourth quarter of 2020 from the US Census Bureau of the Department of Commerce showed a 32% increase from the fourth quarter of 2019. Total annual e-commerce sales for 2020 increased 32% percent by compared to 2019. These are quite significant changes. , and in particular, you cannot use cash for e-commerce.

Most consumers are using their credit cards more conservatively than in previous years with overall card balances dropping for the fifth consecutive quarter, according to a trends report from TransUnion Q4 2020 Industry Insights. This suggests that, despite the likelihood of having to use credit cards more as cash transactions have declined, Americans are using their cards more cautiously.

How credit card debt problems have changed since the pandemic

A recent study by TransUnion Global Payment Hierarchy found that consumer credit obligations have made a noticeable change since the start of the pandemic. In the United States, consumers have shown a clear preference for prioritizing their mortgage payments over credit cards or auto loans. This can be attributed to the increase in the number of people working from home as well as an increase in the number of mortgage borrowers entering newly created loan modification programs, such as special forbearance programs, allowing them to delay payments and maintain their accounts without risk of foreclosure.

This dovetails with a March 2021 YouGov poll conducted in the United States exclusively for Forbes Advisor, which found that 50% of those polled did not feel very or not at all concerned about their credit card debt. Of those in debt, 40% had either the same amount of debt or more since the start of the pandemic.

Credit card

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Less worries for those with credit card debt

Those who had credit card debt on the whole felt quite optimistic about their ability to pay off their balance in a short period of time. Forty-five percent of those polled told YouGov that they would be able to pay off their debt within three months to a year.

This positive outlook for some may be due in part to receiving stimulus payments they might have been entitled to. A family of four who meet the income criteria could have received up to $ 5,600, which could go a long way towards paying off a balance. In fact, 19% of people polled in the YouGov survey said they used their stimulus checks to pay off credit card debt, and 25% said they used that money to pay off other debt, possibly freeing up money. ‘other funds to use for credit card bills.

If you’re struggling to prioritize your money right now, transferring your credit card debt to a balance transfer card might save your time. Typically, this would involve transferring your credit card balance to a card with a 0% APR offer. This can help you avoid accumulating additional debt in the form of high interest charges.

Forty percent said their credit rating had not changed since the start of the pandemic and 24% saw improvement.

– Respondents to the YouGov survey

How credit scores have been affected by the pandemic

Overall, responsible payment behavior has followed an upward trend, despite the economic downturn. Forty percent of people polled in the YouGov survey said their credit rating had not changed since the start of the pandemic and 24% saw improvement.

If you are in the category that hasn’t seen any change or are part of the 12% who have seen their score decline, know that there are steps you can take to improve your creditworthiness.

First, check your credit report to make sure there are no inaccuracies. You can check your credit report for free once a year through AnnualCreditReport.com (until April 2022 you can access your report for free every week). While there are several provisions in the CARES Act that allowed certain types of creditors, such as mortgages and student loans, to accommodate late or missed payments without penalizing your credit, it’s up to you. ensure that any loan modification program that you are participating in does not incorrectly report your account as being in default.

You may also want to consider using free tools like Amex’s Score Goals, which acts as a personalized plan with recommendations to help you achieve a better score over time. Experian Boost is another potential way to improve your score by allowing you to link positive payment histories from telecommunications, utility providers, and video streaming services.

It’s important to know that these steps are meant to complement, but not replace, good credit behavior, including making payments on time and keeping your credit usage as low as possible.

Final result

Credit behavior in the aftermath of the pandemic has remained surprisingly stable, despite the economic challenges for many. Overall, Americans were spending less, which resulted in less credit card debt. Those who were able to do so prioritized paying off existing debts, or at the very least, weren’t too concerned about the debt they had to pay off.

If you fall into another category, where your financial obligations seem insurmountable, know that there is help. Contact your creditors and seek help and / or consider a nonprofit credit counseling agency to help you develop the right plan for your situation.

More than

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