Tracking Credit Health — and the Role Race Plays — During the COVID-19 Pandemic
During the COVID-19 pandemic, Americans have seen some surprising improvements in their credit health. Yet, even with these broad gains, Americans of color are still trailing their white peers on key financial metrics, according to new research funded by the Annie E. Casey Foundation.
The research, conducted by the Urban Institute, looked at various measures of credit health, including credit scores, debt in collections and delinquency rates for mortgages, cars and student loan payments. The final data set covers an eight-month period ending in October 2020 and is represented in an interactive map and at the federal, state and local levels.
Among the Urban Institute’s findings: Residents in majority-Black, Hispanic and Native American communities experience negative credit outcomes — such as low credit scores and use of high-cost payday loans — at rates at least 1.5 times higher than residents of majority-white communities.
Negative credit outcomes can put people of color at an economic disadvantage compared to their white counterparts. About 1 in 10 adults — disproportionately people of color — don’t have a credit file at all, the researchers note. These gaps reflect historical inequities that have led to limited economic choices and less wealth in communities of color.
“It’s important to recognize the racial and ethnic disparities in credit scores and delinquent debt — and how they impact people’s financial lives,” says Velvet Bryant, a program associate at the Casey Foundation. “We hope that the public and private sectors use this data to guide policy responses in both the near and long terms.”
Overall improvements in credit
When the researchers did not factor race and ethnicity into their data set, they saw some key credit metrics improve for all Americans during the same 8-month review period.
- The share of adults with subprime credit scores 600 or lower) fell 3 percentage points to 22%.
- Credit card users, mortgage users, auto and retail loan recipients and student loan users grew less likely to carry past-due debt.
- While the percentage of adults using alternative financial services — such as payday loans — increased slightly, the share of adults who were at least 30 days delinquent fell from 11.5% in February to 9.4% in October 2020.
The study’s documented gains in credit health indicate that financial protections enacted during the pandemic worked. Accordingly, researchers from the Urban Institute urge public and private sector leaders to continue or even expand these protections. Their calls for further reducing debt burdens and supporting families include:
- Continuing to provide relief on utility bills by halting shutoffs, easing late fees and creating payment plans.
- Protecting people from vehicle repossession by placing moratoriums on the practice and encouraging financial institutions to offer relief.
- Ensuring that auto loans are affordable and fair by increasing consumer protections.
- Growing access to affordable health care by expanding Medicaid to decrease medical debt in collections and reduce other hardships.
- Considering encouraging or requiring payment relief for out-of-pocket medical costs related to COVID-19 treatment and care.
- Limiting ATM, overdraft, credit card and other banking payment fees.
Employers can also take action — by boosting health insurance coverage, emergency-savings incentives and emergency cash assistance, for example — to help enhance the financial stability of their employees, the researchers say.