So, will more people have bad credit score because of covid-19? This is the question many business owners and lenders keep asking themselves. Let’s help you answer this question.
The COVID-19 pandemic of 2020 has, for the first time in the history of mankind, led to the shuttering of international trade and the world’s economy. Countries closed millions of businesses and shut their borders even to their neighboring trading partners in an effort to control the spread of the virus. This has caused a major financial crisis in just almost every country as almost every sector of the economy was affected in one way or the other.
How coronavirus will affect credit scores of consumers
As already mentioned, covid-19 pandemic has led to a major financial crisis across the globe. And a major financial crisis can always lead to significant decline of credit scores as it may cause consumers to miss payments on their credit cards, car loans, and any other monthly bills. So, there is a possibility that more people are likely to have bad credit score because of the pandemic.
While people all over the world have directed billions of money to protect their health as well as physical welfare due to the coronavirus pandemic, Covid-19 has also have a huge impact on the well-being and financial livelihood of millions and millions of people around the world. The closure of businesses and borders has led to a loss of livelihoods and incomes, meaning that a significant percentage of people, particularly consumers, now have less money or income to their monthly bills. For this reason, many consumers have been regularly missing payments, especially on their car loans, home loans, and credit card accounts. All these have negative effects of one’s credit history, and thereby affecting the credit score. This is why more people will have bad credit score because of covid-19.
Some consumers had seen this coming and started calling for the changes in the credit score models that the consumer reporting agencies usually use. Those calling for these changes argued that credit score models should mirror the extremely difficult situations that many households and consumers would be facing as the pandemic continues. But adjusting the credit score models in order to improve the credit scores of the people who are facing challenges caused by the covic-19 pandemic might only make those affected to feel better. However, doing so would actually destabilize the whole credit industry. In fact, making changes on how scoring is done to suit consumers’ difficulties would mean that it is no longer a real indicator of the credit worthiness. This could throw potential lenders around the world into very great uncertainty. Such a great uncertainty would further force lenders to start increasing their entire interest rates and they will have to do this across board so that they can neutralize the higher risk that they would now be at for lending their monies to borrowers whose levels of risks are not clearly known.
So, the best thing to do is to protect your credit history so that your credit score is not affected by the financial difficulties caused by this pandemic. For example, you should always keep in touch with your creditors despite the fact that you are struggling to make payments on time. Also, ensure that you are asking your creditors if they have any hardship program in place that best suits your situation.