While the pandemic is creating day-to-day financial challenges for many consumers, some are concerned that it will also impact their ability to finance a car or possibly buy a house for months or years to come.
The COVID-19 outbreak has created cash flow problems for many consumers in the past few months, particularly those who have experienced layoffs or had their salaries unexpectedly cut. Finicity, a company that helps consumers and businesses track financial data, surveyed consumers to find out how such cash shortages were affecting their ability to pay their bills — and, consequently, their credit rating.
A majority of respondents have experienced a financial blow, and many expect to be reeling from the consequences for the foreseeable future.
A widespread financial shock
The pandemic’s financial impact has been widely felt. Among survey respondents, more than half — 55% — said they have either lost a job or experienced a decrease in income because of the COVID-19 crisis. Specifically:
- 29% experienced a temporary layoff or reduction in income
- 15% reported a layoff or reduction in income that was permanent
- 11% lost commissions or bonuses they had been counting on
Not only did that loss of income affect the ability to buy day-to-day items such as groceries, but it also made it more difficult to pay bills. Of respondents who experienced a pandemic-related job loss or reduction in income, 64% said they had a tough time keeping up with bills and payments. On top of that, 56% said their ability to make regular credit or loan payments had been impacted.
For those with an annual household income of less than $50,000, the pandemic has been even more damaging. Of that group, 62% said they have experienced a job loss or reduction of income. Also, 73% of those earning less than $50,000 said they have had a tough time keeping up with bills and payments, compared to 57% of those with a household income between $50,000 and $100,000 and 54% of respondents with an annual household income over $100,000.
Consumers fear long-term effects
Some credit issuers have expressed a willingness to work with consumers who were having a tough time. Of respondents who were offered special arrangements such as delayed payments more than half — 53% — took advantage of the opportunity. Yet, many consumers are concerned that the challenges they are facing will negatively affect their credit scores — and their abilities to make major financial moves in the future.
Many of them had good credit before the pandemic. In fact, 62% of those experiencing a loss of income said they either had excellent or good credit before the coronavirus crisis began.
However, 61% of those who have experienced a loss of income said they are concerned their credit will be negatively affected by their current financial challenges, such as the inability to make on-time payments.
Among those with a household annual income of less than $50,000, the percentage is even higher with more than two-thirds — 68% — saying they are concerned their current financial situation will hurt their credit.
Nearly all of the respondents experiencing a reduction in income — 95% — said they were worried about whether they will be able to rebuild their credit enough to finance large purchases even once the pandemic and recession are over. For example, a hit to one’s credit could prevent them from qualifying for a mortgage in the near future.
Methodology: Salt Lake City, Utah-based Finicity surveyed 2,000 consumers in June 2020.