How COVID-19 Restrictions Have Impacted Credit Scores

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How COVID-19 Restrictions Have Impacted Credit Scores

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Perseverance and grit are built into the foundations of owning a rental property. While March through June of 2020 was taxing to say the least, you’ve had time to remodel your policies and procedures to adapt to rental applicants with an unfamiliar kind of recent credit history. As we were all scrambling over these four months, VantageScore credit scores for consumers have changed as well – and it just might be the good news you’ve needed.

Perseverance and grit are built into the foundations of owning a rental property. While March through June of 2020 was taxing to say the least, you’ve had time to remodel your policies and procedures to adapt to rental applicants with an unfamiliar kind of recent credit history. As we were all scrambling over these four months, VantageScore credit scores for consumers have changed as well – and it just might be the good news you’ve needed.

Renter Credit Scores are Looking Up

In this industry, you can see the very real damage a sudden loss of income can wreak on renters. Typically, rampant unemployment and economic upheaval devastates consumer credit scores, reduces or terminates rental payments, and spikes credit card usage and debt. However, that hasn’t been entirely true during the early months of the coronavirus pandemic.

Renter Credit Scores are Looking Up

In this industry, you can see the very real damage a sudden loss of income can wreak on renters. Typically, rampant unemployment and economic upheaval devastates consumer credit scores, reduces or terminates rental payments, and spikes credit card usage and debt. However, that hasn’t been entirely true during the early months of the coronavirus pandemic.

According to the National Multifamily Housing Council, from the 11 million apartments they collected data from, over 94% made a full or partial rent payment from April to June. Even in the states with the largest increase in unemployment, Experian found that there was “no strong correlation between a state’s increase in the unemployment rate and growth or decline of debt or credit.” It’s worthwhile to keep in mind that this has all been during the initial shutdown and government protections, but an extended recession will likely have a negative impact on this data in the coming months.

Thanks to provisions within the CARES Act in March, the impact of the COVID-19 outbreak and swift decline in the economy has not been as severe. This allowed adverse credit reporting for those affected by COVID-19 unemployment (so long as the individual’s account was current) to be halted and aid like deferred or partial payment plans to be offered.

According to the National Multifamily Housing Council, from the 11 million apartments they collected data from, over 94% made a full or partial rent payment from April to June. Even in the states with the largest increase in unemployment, Experian found that there was “no strong correlation between a state’s increase in the unemployment rate and growth or decline of debt or credit.” It’s worthwhile to keep in mind that this has all been during the initial shutdown and government protections, but an extended recession will likely have a negative impact on this data in the coming months.

Thanks to provisions within the CARES Act in March, the impact of the COVID-19 outbreak and swift decline in the economy has not been as severe. This allowed adverse credit reporting for those affected by COVID-19 unemployment (so long as the individual’s account was current) to be halted and aid like deferred or partial payment plans to be offered.

Because of these early efforts, our data shows that rental applicant credit scores were minorly impacted from March to June and some consumers’ scores increased during this time. Applicants with credit scores ranging from 850 – 660 (classified as “excellent” and “good” scores) collectively increased by 8.20% by June.

0 %
“excellent” and “good” credit scores increased by June
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“excellent” and “good” credit scores increased by June

Because of these early efforts, our data shows that rental applicant credit scores were minorly impacted from March to June and some consumers’ scores increased during this time. Applicants with credit scores ranging from 850 – 660 (classified as “excellent” and “good” scores) collectively increased by 8.20% by June.

“Are Credit Scores Still Reliable?”

Short answer: yes.

Credit scores are used within the rental housing industry to determine whether or not an applicant could be a financial risk based on their prior credit and lending history. Unpaid credit card debt due to the pandemic does not accurately represent how financially responsible the rental applicant is. After all, it’s not their fault COVID-19 hit.

The Long-Term Implications

“Are Credit Scores Still Reliable?”

Short answer: yes.

Credit scores are used within the rental housing industry to determine whether or not an applicant could be a financial risk based on their prior credit and lending history. Unpaid credit card debt due to the pandemic does not accurately represent how financially responsible the rental applicant is. After all, it’s not their fault COVID-19 hit.

long term planning

Although the CARES act has stalled the coronavirus pandemic’s financial effects by offering credit score aid, increased unemployment benefits, and a one-time check to qualifying households, it’s not a permanent solution. As local courts begin to open back up, the industry is going to see a tsunami of evictions and an influx of rental applicants. It will take time for the unemployment rate to start to decline, and some vulnerable renters will simply be unable to work or pay rent. While credit scores look good now, unfortunately, it is unlikely it will stay that way permanently.

long term planning

The Long-Term Implications

Although the CARES act has stalled the coronavirus pandemic’s financial effects by offering credit score aid, increased unemployment benefits, and a one-time check to qualifying households, it’s not a permanent solution. As local courts begin to open back up, the industry is going to see a tsunami of evictions and an influx of rental applicants. It will take time for the unemployment rate to start to decline, and some vulnerable renters will simply be unable to work or pay rent. While credit scores look good now, unfortunately, it is unlikely it will stay that way permanently.

While it’s uncertain what the future will look like, it’s important to celebrate your wins. VantageScore credit scores are up, (for many properties) rent payments are still coming in, and are thriving, doing your best to keep your tenants safe and sound. Be sure to subscribe to our blog to get updates on credit score trends and check out the full report on March through June’s VantageScore data.

While it’s uncertain what the future will look like, it’s important to celebrate your wins. VantageScore credit scores are up, (for many properties) rent payments are still coming in, and are thriving, doing your best to keep your tenants safe and sound. Be sure to subscribe to our blog to get updates on credit score trends and check out the full report on March through June’s VantageScore data.

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The nation’s most trusted tenant screening for real estate agents, landlords, and property managers. No cost background checks available 24/7.

©2018 ApplyConnect. All rights reserved

ApplyConnect marks used herein are trademarks or registered trademarks of applyconnect.com. Other product and company names mentioned herein are the property of their respective owners.