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 dataset cov­ers an eight-month peri­od end­ing in Octo­ber 2020 and is rep­re­sent­ed in an inter­ac­tive map and at the fed­er­al, state and local levels.

Down­load the cred­it health data released by the Urban Institute

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 dataset, they saw some key cred­it met­rics improve for all Amer­i­cans dur­ing the same 8‑month review period.

For instance:

• 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.

Actions ahead

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.

Read more on Casey’s South­ern Part­ner­ship to Reduce Debt

Learn about more Casey-sup­port­ed respons­es to the COVID-19 pandemic