The Emerging COVID Credit Crisis

It may be years, even decades, before we really understand the full financial impact of the COVID pandemic. The global impact of this pandemic has been staggering. In addition to millions of deaths, the economic toll has impacted almost everyone. Businesses closed, workers were told to stay home or had reduced hours, and people went from being comfortable to being unable to pay their bills, practically overnight. In some countries, the government stepped in with monthly subsidies to help keep their people afloat, but in other countries, like the United States, people were left virtually on their own to try to struggle through the economic disaster, while also trying to keep themselves and their families safe.

We are already beginning to see the impact that COVID is having on consumer credit. Millions of people with previously good credit scores are starting to be impacted, as slow-pays, no-pays, and other negative information is making its way to their credit reports. These lower credit scores do more than impact the ability of people to get loans and credit lines, but also their ability to find jobs, and even things like their car insurance rates. As is the case with most economic problems, the most vulnerable are being hit the hardest, with the biggest declines in credit rates being seen in those who earn $50,000 a year or less.

This is very bad news, not just for the people who have been impacted, but for any person who is hoping for a rapid economic recovery once COVID-19 is under control. Economic recovery depends on people being able to resume spending. This means that people need to be able to get the credit to finance or refinance mortgages and finance other major purchases. If people do not have that ability, the economy will take longer to recover, even if unemployment is fixed and incomes restored.

This may mean that people need to look at credit in new ways. There has not been a pandemic event since the advent of modern credit reporting, and it may not be possible to assess credit in the same way after a pandemic as it was before a pandemic. Future credit scores may have to consider other factors in addition to a raw credit score. Unfortunately, as a consumer, you probably have little impact on the global economic impact of COVID on consumer credit and the economy in general. However, there are steps you can take to help restore your own credit. Emerald Credit Solutions can help.

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