While inflation is not a direct credit score factor, its influence can have a big impact.
Right now, the United States has seen historic inflation. From gas to groceries, housing and everyday products, everyone is paying more.
Those day-to-day costs can have an impact on your credit score in subtle ways. Consumers may be tempted to extend credit to purchase items that may now be just outside of their budget, such as TVs, cars, appliances, furniture, and more.
Also, if you took advantage of the historic low-interest rates on mortgages over the past two years, you may find yourself with a lot of house but a bit bigger mortgage payment than you planned.
Since the interest rates were so low, many buyers were caught in bidding wars that pushed them into higher amounts.
Unaffordable payments, whether it’s a house, car or furniture, can quickly turn unmanageable, according to credit reporting agency Experian.
When the price of everyday items skyrockets so much that you are forced to choose between buying groceries or making a credit payment, late or missed payments can damage your credit score.
If you use credit cards, creating higher balances, that impacts your credit score as well, even if you are making timely payments. High balances don’t help your credit score.
Experian suggests giving credit purchases — especially major ones — a lot of consideration, and that may mean putting off the purchase of a car or a house.
To get some extra cash, now may be a good time to sell high-value assets like a car, vacation home, RV or other property. Just don’t plan to replace the item you sold anytime soon.
Credit scores, on average, increased during the pandemic, especially for those who had an average score of 581 (580 is considered poor). Those scores rose, on average, to 601. But those with higher scores didn’t see much of a change.
According to the Federal Reserve Bank of New York’s Center for Microeconomic Data, there was a large increase in total household debt in the first quarter of 2022, increasing by $266 billion (1.7%) to $15.84 trillion. The balance is higher than it was at the end of 2019, before the pandemic.
Even though credit card balances saw a typical seasonal decrease in the first quarter of 2022, they are still $71 billion higher than in the first quarter of 2021, and they saw a substantial year-over-year increase.
Auto loan balances increased by $11 billion in the first quarter of 2022 and student loan balances increased by $14 billion.
In the first quarter of 2022, 229 million new credit accounts were opened, an uptick from the previous quarter and slightly higher than pre-pandemic levels. Debt delinquency has increased slightly but is still at historic lows.