Why Some People’s Credit Scores Spiked During COVID

The early months of the pandemic saw businesses close their doors, putting millions of people out of work. At the same time, there was a bit of economic good news, at least for people with low to middling credit histories: Their scores went up. The reason? Credit card use had declined thanks to COVID.

That’s according to Credit Scores Since the COVID-19 Outbreak, a report released on Thursday (Dec. 16) by the Federal Reserve Bank of Boston.

“This effect is most visible for households with the lowest credit scores,” reads the paper, authored by Michal Kowalik and Lily Liu, financial economists in the Boston Fed’s Supervision, Regulation & Credit department, and Xiyu Wang, a former senior research assistant at the bank. “These households saw the highest increases in credit scores and the largest decreases in credit card utilization.”

Read more: 62% of Consumers See Card Choice as Way of Improving Credit Scores

The report’s authors used data from the New York Fed Equifax Consumer Credit Panel, a representative sample of 5% of all U.S. borrowers. They looked at the period from March through September of 2020, when the first impacts of COVID were felt and when the largest jumps in credit scores occurred.

“Initially, the economists wondered if the significant credit score increases among borrowers rated poor or fair credit risks were related to certain loan forbearance programs included in the Coronavirus Aid, Relief and Economic Security Act, or CARES Act,” the bank said.

However, the research found that few households took advantage of the CARES Act’s forbearance programs. Instead, the authors learned that the rise in credit scores was connected to drops in credit card utilization.

While some households with higher credit ratings saw increased scores, the most drastic increases happened in households with poor or fair credit, an average of 16 points for the lowest-credit borrowers and nine points for people in the fair category.

Read more: CFPB: Credit Applications Returning to Pre-Pandemic Levels

The authors of the report said that by learning why credit scores went up, they can show lenders and legislators what they can expect to see as the economy recovers from COVID.

“You can infer that once the economy starts to grow … these credit scores will either flatten out or maybe decrease a bit as people start seeing their credit card utilization go up, as they spend more and so on,” Kowalik said.