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How Has The Pandemic Affected Your Credit Card Debt?

Two years after the start of the COVID-19 Pandemic, many American families are still experiencing the credit and financial impact of the situation. According to Federal Reserve reports, the credit card debt was $1.09 trillion in February 2020.

In November of the same year, the debt was down to $978 billion. During the pandemic, the credit card debt of Americans was steadily declining, mainly due to unemployment reasons and the reduced level of personal spending.

The Pandemic Affected People’s Credit Card Debt Differently

But not all Americans decreased their usage of credit cards during the Pandemic. One-third of Americans improved their credit score, while another 30% increased their credit card usage mainly due to inflation.

Not only did the level of credit card spending increase for some people, but they also paid bills late during the pandemic. More than 10% of credit card users who earn less than $35,000 reported that their card issuer slashed the limit to one of the cards they used or closed.

While this is the case with roughly one-third of the people, another 32% reported that their credit scores significantly improved during the pandemic. But how has credit changed overall among Americans?

How Credit Card Debt Changed?

According to consumers, the biggest motivation to increase their credit card debt was inflation and lack of resources to pay bills and monthly expenses. Consumers reported that they often need money in advance to pay for certain amenities when stretched on a budget. Some consumers took on more debt due to personal reasons like losing a job or having their pay cut.

Over-cost medical issues are another driver, alongside childcare costs. Some people were depressed during the lockdown and needed to spend more to cheer themselves up. On a general note, the distribution of credit card debt changes was as follows:

  • 30% of the American population increased their credit card debt during the Pandemic.
  • 28% of the American population had no credit card debt during the Pandemic.
  • 24% had the same credit card debt and score before and after.
  • 17% of the population decreased their credit card debt.

Some People Sign Up For The Rewards

Many people don’t need the funds but are frequent travelers or want to take advantage of the cashback and rewards features of the credit card issuers’ promotions. One-third of the Americans applied for new credit cards during the Pandemic, and when interviewed, the major driver was maximizing rewards.

Some credit cards offer more than 60,000 membership rewards, including annual dining credit, bonus miles on plane travel, 2.5% cashback, and others, depending on the applicant’s choice and credit history. Maintaining a good credit history and health is crucial to getting better deals when signing up for a credit card with major issuers.

How to Maintain Your Credit Health?

Regardless of which group of people you were during the Pandemic, you need to maintain your credit health in the future. This can best be done by:

  1. Analyzing your spending: To avoid being late on credit card payments, which are a big problem for keeping a good credit score, you might want to either consider another deal or change something in your spending patterns.
  2. Using the benefits of technology: With the help of technology, you can now set up automated payments to never be late on credit card payments. Paying late is in the past now.
  3. Watch your credit score. When handling multiple credit cards, you must watch your credit score and reports. You can check your credit score in one of the three major credit bureaus.
  4. Review and update budgets: According to Schulz, your budgets should be ‘living documents, constantly analyzed and updated, to ensure you are spending optimally and getting the most out of your credit cards.

When applying for different credit cards, you need to know your credit score and how it is calculated. Two major credit scoring systems are widely used: VantageScore and FICO.

VantageScore:

  • Very Poor Credit Score 300 – 579
  • Poor Credit Score: 500 – 600
  • Fair:  601- 601
  • Good: 661 – 780
  • Excellent: 781 – 850

FICO:

  • Very poor credit score: 300 – 579
  • Fair: 580 – 669
  • Good: 670 – 739
  • Very good: 740 – 799
  • Excellent Credit Score: 800 – 850

Check your credit score before applying for a certain card. If you don’t have a credit score yet, some credit cards require no credit card history whatsoever, so be advised to apply for one of these.

Final Words

During the pandemic, many people increased their credit card spending, while some maintained the same level. Others increased their credit score with good decisions and following an adaptable budget. Use the four tips on maintaining your credit health, and you will reach an excellent credit score in no time.

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