When the COVID-19 pandemic arrived in the U.S. at the beginning of 2020, quarantine and social distancing regulations caused consumer behaviors to change dramatically. Many stores and restaurants were required to close down temporarily and only reopen with limited capacity and increased safety regulations. Several other businesses that were deemed non-essential — such as beauty salons and barber shops1 — were unable to operate for an even longer period.
As a result, many Americans were able to save money during the pandemic. When stimulus checks and other financial relief began reaching bank accounts — from the first payment in March 2020 to the third round in March 2021 — many households were able to improve their financial situations by increasing savings and paying down debt.
The Impact That the Pandemic Had on Delinquent Loan Balances
As businesses closed down during the pandemic, a large number of Americans also experienced financial difficulties due to layoffs and furloughs from their employers. With recent memory of the financial crisis in 2008 — when delinquent loan balances of nearly all types skyrocketed — state and federal governments offered additional types of financial relief to help ease financial burdens caused by the pandemic, such as forbearance on several types of loans. For example, student loan forbearance has been extended for over 3 years, with payments to resume in October 2023. Delinquent student loan balances decreased dramatically, from more than 9% of student loan balances being transitioned into delinquency in Q4 2019 — the final quarter before the COVID-19 virus was confirmed in the U.S. — to a low of just over 1% in Q1 2022.
Additionally, many auto lenders provided this same type of relief, permitting their borrowers to skip several monthly payments and make them up at the end of their loan. As a result, auto loans also saw a decrease in delinquency, from nearly 7% of loan balances in Q4 2019 to a low of less than 5% in Q4 2021.
The Change in Credit Score Broken Down by Generation
Delinquencies on credit card balances and loans can quickly impact an individual’s credit score. Experian reports that 35% of a FICO credit score is calculated based on payment history. And as delinquencies on loans decreased, Americans saw large increases in their credit scores.
Millennials benefitted the most, with an increase of 19 points between 2019 and 2022, but they were followed closely by Generation X with an increase of 18 points over the same time period. The Silent Generation — the generation with the highest average credit score — saw the lowest change in credit scores with an increase of just 3 points.
Looking at the Change in Credit Scores at the State Level
Many COVID-19 regulations and relief options varied by state, leading to varied financial impacts around the country. Additionally, the virus — and its effects on public health — spread unevenly across the U.S., sometimes contributing to prolonged restrictions in some areas more than others. While the average credit score in the West region of the U.S. increased by nearly 1.9%, the Northeast, once home to the early epicenter of COVID-19 in the U.S., was slower to lift pandemic restrictions and experienced a slower economic recovery.
At the individual state level, Idaho, Alaska, Arizona, and Nevada led the nation with average credit score increases of 2.3% — an increase of 16 points. At the other end of the spectrum, North Dakota (+0.8%) and South Dakota (+1.0%) had the smallest credit score increases, but both had an average credit score of 727 in 2019, the highest credit scores at that time behind only Minnesota.
For a breakdown of all 50 U.S. states, here is the report’s complete data table:
Methodology
The data used in this analysis is from Experian’s What Is the Average Credit Score in the U.S.? research and the Board of Governors of the Federal Reserve System’s Household Debt dataset. To determine the states with the biggest increase in credit scores during COVID-19, researchers at Upgraded Points calculated the change in average credit score from full-year 2019 to September 2022. In the event of a tie, the state with the greater total change in average credit score during the same time period was ranked higher.
Final Thoughts
Despite the difficult circ*mstances of the COVID-19 pandemic, many Americans saw their finances improve. Decreased spending and loan forbearance improved credit scores by decreasing credit utilization rates and preventing borrowers from being penalized for late or missed payments. Stimulus checks also helped individuals pay off outstanding debt, further preventing delinquent loan balances and improving credit scores.
Millennials saw their credit scores increase the most, with an average increase of 19 points. The Silent Generation — the generation with the highest average credit score — saw the lowest change in credit scores with an increase of just 3 points.
Changes in credit scores during COVID-19 varied by region. The West region of the U.S. saw the largest credit score benefit in the nation with an increase of 1.9%. Idaho, Alaska, Arizona, and Nevada all saw their residents’ average credit score increase by 16 points.
References
1. U.S. Bureau of Labor Statistics. (2022, May 20). Beyond the Numbers, Recovering from the pandemic: A bright outlook for the personal care service industry. https://www.bls.gov/opub/btn/volume-11/recovering-from-the-pandemic-a-bright-outlook-for-the-personal-care-service-industry.htm. Retrieved July 27, 2023.
