The Unforeseen Impact on Credit Scores

The Unforeseen Impact on Credit Scores

As an experienced bankruptcy and debt attorney, Omar Zambrano Attorney at Law is dedicated to assisting families who are facing layoffs, unemployment, or falling behind on payments. We specialize in debt elimination and offer free consultations. Contact us at 626-338-5505.

In the current financial climate, the dependability of credit scores is being questioned. Individuals who managed to reduce their debt and enhance their credit scores at the onset of the pandemic are now experiencing an unexpected increase in late payments. This trend indicates that credit scores may not be as steadfast as they once were.

A comprehensive study by TransUnion involving over 75 million credit scores revealed that the delinquency rates for loans or credit cards initiated in mid-2021 aligned with those typically associated with borrowers whose credit scores are 25 points lower. The pandemic-induced policies such as enhanced unemployment benefits, stimulus checks, and freezes on federal student loan repayments may have inadvertently inflated some credit scores.

Credit card borrowers in particular are defaulting on their payments and transitioning to 90+ day delinquency at a rate higher than pre-pandemic levels. Auto loans present a similar trend, although the overall performance at the individual level remains slightly healthier than just before the pandemic for most age groups. However, younger borrowers are facing more challenges.

As interest rates climb, so does the cost of borrowing, leading to higher minimum monthly payments for credit card balances. Another potential factor could be a decline in underwriting standards, making it easier for those with lower credit scores to borrow. However, our Consumer Credit Panel (CCP) data suggests this is unlikely.

As individual-level delinquency rates approach or even exceed pre-pandemic norms, many are quick to point fingers at the labor market as unemployment is rising weekly in America.

At Omar Zambrano Attorney at Law, we understand the financial hardships that many families are facing. If you're dealing with layoffs, unemployment, or falling behind on payments, we're here to help. We specialize in eliminating debt and offer free consultations. Our goal is to help you navigate your financial challenges and work towards a more secure future. Contact us at 626-338-5505 to learn how we can assist you.