Report Shows Americans with Income Under $50,000 Particularly Anxious;
Borrowers Looking for Better Credit Review Processes as COVID Exposes Limitations of Current Methods
SALT LAKE CITY, Utah — Aug. 11, 2020 — Americans suffering personally from the financial impacts of the COVID economy worry, even when the pandemic crisis wanes and the economy begins to recover, that restoring their credit may take some time and hinder their purchasing power, according to a new report.
Americans at lower income levels, under $50,000 in annual household income, are particularly fearful, according to the report from Finicity, called Combating the Emerging COVID Credit Crisis. The data from this group paints a stark picture of financial loss from COVID-19, credit anxiety, and lagging financial literacy.
Most respondents said that participation in future credit markets may require changes that let responsible borrowers better prove their creditworthiness to lenders.
The report proposes that the eventual economic recovery from the COVID recession will hinge on major purchases which require credit for most consumers and if that credit is withheld because of short-term impact from being out of work or at reduced income levels, then broader economic issues may result.
“This health crisis is likely to bring an impending credit crisis along with it, and a key component of economic recovery will be consumers’ ability to secure the loans and credit needed to finance major purchases,” said Steve Smith, CEO and co-founder of Finicity. “Even when this crisis subsides and people return to work at their previous income level, bouncing back from this hit to their credit could still take years.”
The report, which is based on a survey of 2,000 US respondents in June, found that 55% of all respondents have lost their jobs or had their income impacted because of COVID-19. Those job and income losses have put a significant financial strain on those impacted, the report said, and are affecting credit usage. Far more than half (64%) of the impacted said personal economic conditions have made it difficult for them to keep up with bills and payments.
As a result of the COVID-19 financial hardship, 61% of the impacted are now concerned their credit will be negatively affected. And, nearly all (95%) of the impacted are concerned about their ability to rebuild their credit and finance purchases even after the pandemic and recession pass.
Lower Income Americans Especially Impacted
A deeper examination of consumers with annual household incomes below $50,000 shows that the pandemic created even more significant job and income losses, and also reveals an imbalance in credit opportunity for these lower income consumers.
The report found 73% of those with a household income under $50,000 said this financial situation has made it difficult for them to keep up with bills and payments. That was significantly more than higher income levels: 57% of those with a household income between $50,000 and $100,000, and 54% of those with a household income over $100,000.
Changes in Credit Processes
The large-scale loss of jobs and income in the COVID economy, and the mass anxiety over the impact to credit scores and the lengthy process of rebuilding credit, leaves many consumers looking for changes in the credit review process, including 82% of respondents saying they believe the current credit review process and criteria need to change to make it easier for responsible borrowers to demonstrate creditworthiness.
Many consumers want a better understanding of which personal financial data is used in lenders’ credit-decisioning process, and how that data is used. Consumers with the lowest household incomes show the least confidence in their knowledge of their financial data, as only 51% of those with a household income under $50,000 said they know what financial information lenders are using to determine creditworthiness.
“The idea of improving the credit process is not new, but the overall number of people who have been simultaneously affected as a result of COVID-19 shines a light on what borrowers have been facing for many years. There’s clearly a need to evaluate the credit-decisioning process and how consumers can become empowered to take control of their own financial data, and benefit from its use,” said Smith. “Real-time and reflective data is key to broader inclusion in the traditional financial system, and the emerging open banking model will provide the consumer empowerment needed while giving lenders a more robust picture of creditworthiness for borrowers.”
Finicity’s mission is to help individuals, families and organizations make smarter financial decisions through safe and secure access to fast, high-quality data. The company provides a proven and trusted open banking platform, that puts consumers in control of their financial data, transforming the way we experience money — everything from budgeting, payments, investing and lending. Finicity partners with influential financial institutions and disruptive fintech providers alike to give consumers a leg up in a complicated financial world helping to improve financial literacy, expanding financial inclusion, and ultimately leading to better financial outcomes. Finicity is headquartered in Salt Lake City, UT. To learn more or test drive its API, visit www.finicity.com.
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