Credit scores rose for consumers who dealt with COVID hardships

At least one credit score model revealed improvement for 18.7 million borrowers with financial hardships during the pandemic, new TransUnion research shows.

In a study of VantageScore 4.0 changes for consumer credit lines other than student loans, TransUnion found that 58% of those with an indicator of forbearance or any other type of payment relief program in 2020 saw an increase during that year, when the CARES Act limited some adverse credit actions.

Subsequently, a divergence appears in the data for a subset of those borrowers who went on to get bank cards between those who remained in plans and those who exited hardship. Those exiting generally had higher credit utilization rates, were more likely to have mortgages, and experienced lower levels of bank card delinquencies, unless they were borrowers with particularly high scores.

For example, among those who left hardship and did not have “superprime” credit, 40% had mortgages, compared to 24% of those who remained in plans. The average number of credit tradelines for those exiting was 8.4 vs. 7.6 for those that generally stayed in hardship. Non-mortgage balances on average approached $16,000 for those in plans and was more than $25,000 for people who left them. In addition, the average use of revolving credit was over 46% for those who exited, while the equivalent for people who didn’t was nearly 40%.

After obtaining bank cards, 30-plus day delinquencies on that new credit seen through June of this year were lowest for borrowers who exited plans at 7.4%, compared to 8.7% for those who remained in them. Only in the group with particularly high credit scores did this trend reverse, with 0.7% of those remaining in hardship delinquent vs. 0.8% of exiters.

“Consumers who had exited hardship by the third quarter of 2020 were more likely to have a mortgage and performed better than those who remained in plans, except in superprime, where that flips,” said Paul Siegfried, senior vice president, card and banking lead at TransUnion, in an interview.

He declined to comment on the causes or ramifications of the findings pending further study, but noted that the findings of clearly divergent performance between the groups remaining in plans compared to those leaving them, and the segmentation by credit, appear significant.

Mortgage lenders generally don’t use VantageScore in underwriting but rather an early version of FICO scores because the latter are entrenched in major government-sponsored loan buyers’ systems. The different score types all reflect consumer credit information but weigh and analyze various types of data differently.

TransUnion determined consumers to be in hardship if credit reports listed a forbearance or natural disaster remark code, a deferment term, or that there was no minimum payment due on a credit line with a balance greater than zero.