US borrowers who took on new debt in the middle of the pandemic are falling behind on repayments at unusually high rates, after lenders extended more credit to households helped by government stimulus.
Federal programmes sent cash and froze certain loan repayment requirements for US consumers strapped by the economic shock of Covid-19.
One effect was to drive up the median consumer credit score by 20 per cent to a peak of 676 in the first quarter of 2021, according to a report by TransUnion, a credit reporting agency. Credit scores above 670 are considered “good”.
Lenders became more willing to provide consumer credit. Credit card and unsecured loan originations rose by more than half between 2020 and 2022, TransUnion said.
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Shocking news: the borrowers whose credit scores were inflated due to pandemic handouts are defaulting on after effects of binge borrowing.@FT: Late payments rise on US loans tied to inflated pandemic credit scoreshttps://t.co/hhppqjLfih
— Axel Merk (@AxelMerk) October 19, 2023