Americans made a dent in their debts during the pandemic, according to a new study from QuoteWizard.
Analysts for QuoteWizard, an online lead generation marketplace for insurance, monitored thirty-three debt metrics between February 2020 and October 2020. They found that credit scores improved, people made more payments on their student loans, and the number in debt collection dropped.
Nationally there was a 10% decrease in subprime credit scores and a 2% decrease in debt collection. Student loan delinquency and credit card delinquency both fell, by 32% and 31% respectively.
“Americans having less debt has broader implications across the whole economy. The better your credit score, the less you are going to pay on everything from auto loans and home mortgages to cell phones and insurance,” QuoteWizard Senior Research Analyst Nick VinZant told The Mortgage Note.
“We also found that the recent decline in debt has had a significant impact on the housing market. People were able to catch up on or pay off their student loans, and that gave them an opportunity to move into the housing market. Lockdowns significantly decreased how much people were spending on entertainment and travel, and so they were able to save more money for a potentially larger down payment.”
Minnesota had the largest change in its amount of debt, with credit card scores increasing three percentage points and the number of people in collections falling by three percentage points. Credit card delinquency in the Gopher State decreased by 73%, and student loan delinquency fell by 33%.
Alaska, which had one of the lowest overall changes in debt, saw its number of subprime credit scores drop by two percentage points, debt collection drop by one percentage point, student loan delinquency fall by 24% and credit card delinquency fall by 60%.
Down payments have risen alongside skyrocketing housing prices in the last year. A study by LendingTree found that the average down payment across large metros in the U.S. is now more than $46,000. In San Jose and San Francisco, it’s more than $100,000.
“Plus, with credit scores improving and credit card delinquency declining, people were able to get a better mortgage rate,” Vinzant said.
“In short, the decline in debt and spending meant that people had more money to spend on housing and thus were willing to pay higher prices.”