Consumer behavior changed significantly as a result of quarantine and social segregation rules when the COVID-19 epidemic hit the United States at the beginning of 2020.
Covid-19 situation (Source: Brookings)
COVID-19 Significantly Affects the Economy
According to the news released by Clayton news daily, numerous businesses, including restaurants and retail outlets, had to close temporarily and could only reopen with tightened security measures. Other companies that were considered not necessary, such as barbershops and beauty salons, were unable to run for even longer periods.
Numerous Americans were able to save money throughout the pandemic as a result. From the first payment in March 2020 until the third round in March 2021, when stimulus checks and other forms of financial relief started to arrive in bank accounts, many households were able to improve their financial conditions by raising savings and reducing debt.
Many Americans encountered financial hardships as a result of layoffs and employer-imposed furloughs as businesses shut down during the outbreak. However, state and federal governments provided additional forms of financial relief, such as forbearance on various sorts of debts, to help reduce the financial constraints brought on by the pandemic. For instance, the deferment period on student loans has been increased by more than three years, and payments will resume in October 2023. The percentage of student loan amounts that were delinquent declined considerably, from more than 9% in Q4 2019—the last quarter before the COVID-19 virus was detected in the U.S.—to a low of just over 1% in Q1 2022.
COVID-19 Relief Grants for Individuals, like this kind of relief, was also offered by several vehicle lenders, who allowed their clients to skip a few payments each month and make them up after the loan. Delinquencies on vehicle loans consequently fell from almost 7% of loan balances in Q4 2019 to a low of less than 5% in Q4 2021.
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Credit Score Pulled by Covid-19
Delinquencies on loans and credit card balances can have an immediate effect on a person’s credit score. Payment history makes up 35% of a FICO credit score, according to Experian. Additionally, Americans’ credit ratings significantly increased as loan default rates fell. The generation that benefited the most, the millennials, saw a 19-point boost between 2019 and 2022, although Generation X came in second with an 18-point gain during the same time frame. The Silent Generation, whose average credit score is the highest, experienced the smallest percentage change in credit ratings, rising by just 3 points.
There were several different COVID-19 legislation and relief choices according to state, which had different financial effects across the nation. The virus’s distribution across the country was also uneven, which occasionally made some places more susceptible to long-term limitations than others. The average credit score in the West of the United States increased by over 1.9%, but the Northeast, which was formerly the early U.S. COVID-19 epicenter, took longer to abolish pandemic restrictions and had a slower rate of economic recovery.
With average credit score gains of 2.3%, or an increase of 16 points, Idaho, Alaska, Arizona, and Nevada led the nation at the state level. On the other end of the scale, North Dakota (+0.8%) and South Dakota (+1.0%) experienced the smallest improvements in credit scores, but both states’ average credit scores in 2019 were 727, which was the second-highest score after Minnesota.
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