Keeping your credit profile healthy during a pandemic

Credit may not be top of mind for many consumers these days. But as the pandemic and its associated economic woes drag on, they may want to give it some attention.

The good news is that consumers, by and large, improved their credit profile during the pandemic, despite record unemployment and massive business shutdowns.

The support programs that were put in place worked. Helped by federal stimulus payments, expanded unemployment benefits, lender relief agreements and a shift in habits, Americans used less credit, paid down debt, made fewer

late payments and improved their credit scores. The average FICO credit score was 711 in July, up 5

points from a year earlier, according to Fair Isaac, the company behind the score. A FICO score runs from 300-850 and is one of the most widely used metrics to determine a consumer’s credit worthiness.

“It definitely feels like many consumers have taken a cautionary step in terms of saving and spending,” said Matt Komos, Vice President of Research and Consulting at credit reporting agency TransUnion. “I think there is a general cautiousness among the American consumer.”

The bad news is consumers’ financial health could be heading for a downturn soon. Some relief measures are expiring or have concluded, Congress has yet to reach agreement on a new relief package; meanwhile the job market and econom

ic recovery remain fragile.

Credit profiles don’t yet reflect those developments. There’s typically a lag time between a major economic event and when it’s reflected in the credit files of Americans.

For example, during the Great Recession, the average national FICO score didn’t hit its lowest point until late 2009, months after the recession officially ended, wrote Ethan Dornhelm, vice president of FICO Scores and Predictive Analytics, in a blog Monday. In the case of the COVID-19 pandemic, it could be a significant lag

because of the extraordinary steps taken to help consumers.

TransUnion said it is seeing a slight increase in 30-day late payments, potentially an early indication that borrowers are under financial duress and could default. This measure increased modestly in August for the two largest payments

most consumers face — auto and mortgage.

“I think the full impact of the pandemic on their credit isn’t known yet and that is what worries me,” said Paul Golden spokesman for the National Endowment for Financial Education. “Even with good credit and low debt and some savings, after more than six months or

potentially going on to a year, few people can withstand that stress.”

Consumers should be aware that some of the rules surrounding credit have changed, and keep in mind that the decisions they make to survive these tough times will impact their financial future.

For one thing, checking a credit report has gotten easier. As part of a massive relief package passed by Congress, known as the CARES Act, consumers can check their credit report from the three credit reporting agencies weekly for free online at annualcreditreport.com. This expanded access is available through April 2021.

Associated Press A woman walks past a personal finance loan office on Oct. 1 in Franklin, Tenn. Consumers, by and large, improved their credit profile during the pandemic.