How Has COVID-19 Impacted Consumer Credit?

Published March 2021

The COVID-19 health crisis and the subsequent economic crisis resulting from the implementation of measures meant to contain the pandemic have had a profound impact on consumer credit. 

In addition to these factors, the financial help that the CARES Act ushered in further complicated the consumer credit picture. Read on to learn how.

Key Points: 

  • At the start of the COVID-19 pandemic, experts feared the worst for the consumer credit market, but government assistance and the willingness of lenders and borrowers to explore alternative repayment paths have averted disaster. 
  • The crisis prompted borrowers to adopt a more responsible financial behavior regarding credit card debt. 
  • As assistance programs expire, more accounts roll into delinquency, underscoring the importance of effective credit card debt relief. 

How Did COVID-19 Impact Consumer Credit? 

Scores of government agencies and independent experts have attempted to answer this question. With a bit of forensic work, ClearOne Advantage has assembled  a coronavirus consumer credit timeline that is as interesting as it is surprising. 

March 19, 2020. LendingTree publishes the findings of a survey it completed on March 13. The survey concludes that 63 percent of Americans already feel the sting of COVID-19 in their personal finances. 44 percent fear that they will not be able to keep up mortgage and rent payments. 23 percent worry about their credit card bills. The prediction is that consumer credit will likely suffer, and credit card debt will soar. 

March 27, 2020. President Donald Trump signs into law an unprecedented economic stimulus bill that addresses the concerns the above- mentioned LendingTree survey highlighted, to the tune of $2.2 trillion. The Coronavirus Aid, Relief, and Economic Security Act (CARES) tackles the COVID-19-related economic challenges on multiple fronts. In addition to direct payments to Americans, it opens up various avenues for credit card relief. 

May 2020. Moody's analysts attempt to forecast the impact of COVID-19 on consumer credit, with payment assistance already in the picture. They identify auto and unsecured loans as the sectors most exposed to risk, raising the specter of exploding credit card debt again. 

Regarding payment assistance, they consider balance forgiveness, interest relief, modifications, and deferred payments. They conclude that the scope and impact of assistance programs remain uncertain. Payment assistance can only help avoid borrower and lender losses if the stress it addresses is temporary. 

August 31, 2020. The Consumer Financial Protection Bureau’s Office of Research gives us the first detailed insight into the early effects of the COVID-19 pandemic on consumer credit, and with it, a glimmer of hope. 

The study is highly relevant, using a sample of more than five million credit reports through the Consumer Credit Panel. Looking at the period from March to June 2020, it concludes that payment assistance works perhaps better than expected. 

  • Delinquency rates fall across the loan spectrum, including credit card accounts. 
  • The effects of payment assistance are obvious in the increasing number of accounts with positive balances and zero payments. 
  • Credit card limits decline. The number of credit card account closures increases, reflecting a more cautious approach to spending on the part of those with very high credit scores. 
  • Credit card balances decrease, indicating that credit card relief programs work. People do not turn to credit card debt to finance their essentials. On the contrary, they budget better and limit their spending.  

Against the backdrop of high unemployment and fading hopes of a quick resolution of the pandemic, the findings of the CFPB study provide an impressive testimony to the effectiveness of assistance programs and alternative debt relief solutions. 

Cares Act.

October 21, 2020. The Federal Reserve releases its assessment of the consumer credit card market, offering a detailed picture of the prevailing situation and a valuable overview of the literature dealing with the effects of COVID-19 on consumer credit. 

The Fed’s study correctly identifies the drivers of the surprising drop in revolving consumer credit (unpaid balances carried over from one month to the other). The researchers consider the dual function of credit cards, transaction and credit, to determine that freefalling purchase volumes drive the revolving credit drop. 

Falling purchase volumes are not good news for the economy, but they help people stay out of credit card debt. 

The study also points out that the 65 percent drop in revolving consumer credit registered in April is unprecedented in history. 

In addition to reining in spending, people have also paid off a larger percentage of their revolving credit, possibly due to income-boosting government action. 

December 10, 2020. Experian and Oliver Wyman researchers publish the first report of a planned series of data-focused analyses they hope will help lenders and policymakers better understand the COVID-19 consumer credit picture. 

With most benefits and extraordinary assistance expired, deferral balances have begun dropping. Lower credit quality remains in assistance. However, even the most hardship-ridden cases are slowly reaching the end of their programs.   

Borrowers are least likely to defer their credit card balances. Most prefer to defer their mortgages instead. 

As assistance expires, more and more unsecured debts, including credit card debts, roll into delinquency. According to the report, credit card delinquency roll-rates have exceeded 150 percent of the 2019 levels. That said, most accounts coming out of assistance have remained current. 

Get Out of Credit Card Debt Now

Although government assistance has thus far succeeded in averting a consumer credit meltdown, with no signs of the pandemic abating, the crisis is still a threat. 

Getting rid of unsecured debt - especially credit card debt - has never made as much sense as it does now. 

Debt relief is always a worthy financial goal regardless of the circumstances. Even if your situation seems hopeless, you still have options. Contact a ClearOne Certified Debt Specialist at 866-481-1597 to learn which credit card relief option suits you best. 

Get a free savings estimate today.

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Topics: Covid Debt Relief