Coronavirus tanked the economy. Then the credit score went up.



Millions of Americans lost their jobs and quit debt payments this year. You might not know that consumers are looking at credit scores.

While coronovirus was tarnishing the American economy, Americans’ credit scores — a metric used in almost every consumer-lending decision — were increasing. According to Fair Isaac, the average FICO credit score was 711 in April, 708 in April and 706 a year earlier. Corp.

    FICO <span>0.09%</span>


  Creator of scores.  Preliminary estimates suggest that the average level has remained stable in mid-July through October, the highest initiated by FICO since 2005 in track keeping. </p><div> <p>The increase is largely due to unprecedented financial support when the government and lenders lured consumers and increased unemployment benefits following the epidemic of US Stimulus payments, enabling many borrowers to submit their bills and in some cases So they also had to pay.  loan.  Extensive payment holidays on mortgages, auto loans and student loans freed up funds and kept credit reports clean.









  The ability of American consumers to withstand such severe economic shocks is undoubtedly good news - a result that few would have predicted in the early days of the epidemic.  But for lenders, an increase in credit score is yet another complicating factor making it difficult to assess risk.














  During the last fall, unemployment as well as debt deficiencies increased, and credit reports missed payments in short order.  This time it has not happened, yet millions of Americans are out of work and left with unemployment benefits.  Disconnect has broken the underwriting model of lenders and sent them in search of new ways to evaluate the creditworthiness of applicants.




  A major fear is that if the Congress is unable to negotiate additional assistance for the unemployed, the credit quality of consumers may deteriorate.  "We fear that credit reports could cause real damage in a couple of months," said Francis Cretan, chief executive of the Consumer Data Industry Association.




  The FICO score, which ranges from 300 to 850, is calculated using information in consumers' credit reports, including the total spending limit, payment history, and the ratio of credit card debt to prior loan applications.  They do not take into account employment history or income.




  Ethan Dornhelm, vice president of scores and predictive analytics at FICO, said scores are generally weak indicators.  A few months after the recession officially ended, in October 2009 last fall, the credit score went down to 686.




  "First there is macro stress, and then it takes a few months for people to stretch their credit reports," he said.  Divergence programs and government incentives are "another effect of relieving that tension for many people."





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    'We are convinced that new methods of assessing credit worthiness, such as reviewing individual cash-flow data, present a serious reflection of risk ...'
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      <span class="inset-author article__inset__pullquote__author">- <em>Steve Smith, CEO of Finality</em></span>
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  What's more, the credit profile of many borrowers has improved in recent months.  A decrease in credit-card spending helped with total outstanding card debt.  Government incentives and postponement of lender programs helped borrowers to stay current on their loans.




  De Donnell's credit score was at least in the subprime sector in February 500, when he lost a job at a health-insurance company.  The 45-year-old man used his share of the credit card to pay off a debt of about $ 10,000, which he said was costing him $ 600 in minimum monthly payments.  She was able to cover her remaining bills, savings and her other bills with her $ 1,200 incentive payment.




  In July, Ms. Donnelly got the opportunity to work under the auspices of a startup.  His credit score is now around 700.




  "Kovid forced me to look at my finances," she said.




  According to senior officials in big banks, lenders are tampering with their underwriting model in an effort to avoid loan-seeking applicants who are unemployed and on the verge of falling out of government aid.  Some want to identify current customers at high risk of default.





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Has your credit score increased during the recession? How are you managing your finances? Join the conversation below.

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  <p>Big banks including JP Morgan Chase JPM to understand these risks <span>-0.21%</span>


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  , Wells Fargo WFC <span>-0.39%</span>


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  According to people familiar with the case, credit reports and real-time income or cash-flow data are seeking to raise scores.




  Including reviewing their own bank-account data when evaluating certain applicants.  Some are weighed using information from other financial institutions.  (In most cases, they will require the applicant's permission to use that bank-account data in the underwriting process.)




  Lenders are interested in data to evaluate new loan applicants, in particular, credit card and other loan seekers who typically do not require income documentation.  Some are also discussing using cash-flow analytics - for example, a lag in deposits indicating recent layoffs - to determine whether to cut off the credit lines of existing borrowers.




  Financial-technology company Finacity is in talks with banks about providing this data.  Chief Executive Officer Steve Smith stated, "We are convinced that new ways of assessing credit eligibility, such as reviewing personal cash-flow data, present a critical reflection of risk, and many banks are increasingly considering this Are coming. "









  Passive credit-card accounts are considered particularly risky these days.  Lenders are concerned that customers will arrive for them when unemployment is over, so they are trimming credit lines and closing some accounts altogether.  Customers with credit scores in the mid-700s are also generally viewed as more creditworthy and eligible for lower interest rates - they were not spared.




  Despite the concerns of lenders, there is evidence that Americans are prioritizing debt payments in the epidemic.  In a June survey of about 1,300 households, the Federal Reserve Bank of New York found that people who received incentive payments used 35% of the money to pay off the loan.




  Ben Rohrs, 42, was laid off as a technology product manager in March.  He and his wife withheld nearly $ 5,000 monthly mortgage payments for six months, and used free-money as well as unemployment and his wife's income to maintain their credit-card bills.




  Mr. Rohrs started a new job last week.  His credit score is close to 830, where it was in March.




  "I really feel lucky that unemployment was on the rise and hostage arrests were huge," he said.




  <strong>Write </strong>Anamaria Andreasis at [email protected]




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