Workplace of Analysis weblog: Credit score rating transitions in the course of the COVID-19 pandemic

Many households discovered that their monetary fortunes modified in the course of the pandemic, and these modifications have been typically mirrored of their credit score scores. A recent CFPB analysis discovered that the distribution of credit score scores shifted upward in the course of the pandemic, suggesting that pandemic-era mortgage forbearances, the federal pupil mortgage reimbursement pauses, and federal money transfers that improved some customers’ monetary wellbeing drove the general will increase in credit score scores. 1 On this weblog, we analyze will increase in scores by credit score rating tiers, labeling client credit score scores as deep subprime, subprime, near-prime, prime, or superprime. These tiers are essential to check as a result of many lenders use them to make mortgage choices and set the phrases of credit score. A better credit score rating tier can permit a client entry to extra and cheaper credit score, holding all else equal. We discovered that the deep subprime and subprime tiers skilled the largest upward shift, although people in larger credit score rating tiers have been additionally extra more likely to transfer up no less than one tier than they have been earlier than the pandemic. Forty-three % of customers with subprime credit score scores moved up no less than one tier in the course of the pandemic, whereas within the ten years previous to the pandemic, solely 37 % moved up no less than one tier.

We used knowledge accessible to the CFPB to look at the transitions of customers throughout credit score rating tiers utilizing a commercially accessible credit score rating. The info are quarterly snapshots from June 2010 by means of June 2022 of the Shopper Credit score Panel (CCP). The CCP is a 1-in-48 deidentified longitudinal pattern of credit score information from one of many nationwide client reporting businesses. We assigned customers to five credit score bins as in different CFPB work characterizing borrower danger profiles: Deep Subprime (300-579); Subprime (580-619); Close to-prime (620-659); Prime (660-719); and Superprime (720-850). For every quarter of the CCP by means of June 2021, we assigned customers a credit score rating bin reflecting their credit score rating, and a rating bin reflecting their credit score rating 12 months sooner or later. The figures show these 12-month transitions between rating bins. Every quantity represents the % share of customers who’ve transitioned to a specific credit score rating bin, aggregated throughout all quarters of the CCP individually by the pre-pandemic and pandemic durations.2 The pre-pandemic period consists of customers in quarters from June 2010 by means of December 2019 and the pandemic-era consists of customers in quarters from March 2020 by means of June 2021.

Determine 1: Pre-pandemic Credit score Rating Transitions

Stacked bar chart representing pre-pandemic credit score transitions. Description of data is included in the blog post content.

Supply: Authors’ calculations from the Shopper Credit score Panel. Every bar represents customers with credit score scores within the tier listed on the left-hand-side and offers the share that transitioned to a brand new tier or remained of their unique tier twelve months later. The pre-pandemic interval consists of customers’ credit score scores between June 2010 and December 2019.

Determine 2: Pandemic-era Credit score Rating Transitions

Stacked bar chart representing pandemic-era credit score transitions. Description of data is included in the blog post content.

Supply: Authors’ calculations from the Shopper Credit score Panel. Every bar represents customers with credit score scores within the tier listed on the left-hand-side and offers the share that transitioned to a brand new tier or remained of their unique tier twelve months later. The pandemic period consists of customers’ credit score scores between March 2020 by means of June 2021.


The figures examine client mobility throughout credit score rating tiers earlier than and in the course of the pandemic. Every bar represents the distribution of credit score rating tiers for customers who have been within the credit score rating tier labeled on the left-hand aspect 12 months prior. For instance, within the pre-pandemic interval, 79 % of customers who had deep subprime credit score scores have been in the identical credit score rating bin one 12 months later. The remaining 21 % of those customers moved to larger credit score rating bins, with 16 % shifting to the subprime credit score rating tier, 4 % shifting to the near-prime tier, and one % shifting to the prime tier. Transitions out of the deep subprime tier turned extra widespread in the course of the pandemic, with solely 74 % of customers remaining in that tier one 12 months later. Transitions to the subprime, near-prime, and prime tiers have been extra widespread.

Transitions out of the subprime credit score rating tier additionally turned extra widespread in the course of the pandemic. Earlier than the pandemic, 37 % of customers with subprime credit score scores remained within the subprime tier after one 12 months, and 26 % fell to the deep subprime tier. These shares fell to 35 % and 22 %, respectively, after the pandemic. Moreover, the share of customers transitioning to the near-prime tier elevated from 28 % to 30 %; to the prime tier, eight % to 11 %; and, to the super-prime tier, from one % to 2 %.

Although the modifications are much less stark than for debtors with subprime credit score scores, customers with near-prime, prime, or superprime credit score scores have been additionally much less more likely to transition to a decrease credit score rating tier in the course of the pandemic. Of customers with near-prime credit score scores, 24 % transitioned to a decrease tier earlier than the pandemic, in comparison with 21 % after. These shares have been 17 % and 15 % for customers with prime credit score scores, and eight % and 7 % for customers with superprime credit score scores. Transitions into larger credit score rating tiers additionally turned extra widespread. Thirty-seven % of customers with near-prime credit score scores moved to a chief or superprime credit score rating earlier than the pandemic, whereas 43 % of those customers improved their credit score rating tier in the course of the pandemic. The share of customers with prime credit score scores that transitioned to superprime elevated from 27 % earlier than the pandemic to 31 % in the course of the pandemic.

The enhancements in client credit score scores in the course of the pandemic have been pushed by customers with deep subprime and subprime credit score scores, however customers in each credit score rating tier have been extra more likely to transition to a better tier and fewer more likely to transition to a decrease tier than earlier than. Notably, the falling share of customers with deep subprime and subprime credit score scores was not solely as a result of transitions out of those tiers, but in addition due to decreased charges of transition into these tiers.

Given the significance of prime credit score scores in accessing lower-cost auto loans, mortgages, and different credit score merchandise, the rising variety of transitions out of subprime credit score rating bins sheds gentle on one issue that led to elevated entry to credit score in the course of the pandemic. Nevertheless, given quickly rising costs for items bought on credit score—especially cars and housing—a better credit score rating is probably not sufficient to offset rising prices. Longer mortgage phrases might decrease funds at the price of paying extra curiosity, however some customers are nonetheless priced out.

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