By Jason Harvison, CEO, Elevate
COVID-19 has upended the financial situation for millions of Americans. A December 2020 report from the Center for the New Middle Class showed that in the prior three months, 44% of nonprime Americans (those with credit scores below 700) and 53% of prime Americans (up from 34% pre-pandemic) experienced an extraordinary event that disrupted their finances. As a company focused on serving those consumers who may be shut out of traditional borrowing opportunities, Elevate understands that access to safe, affordable credit is as important as ever in enabling Americans to achieve financial security.
While average credit scores have risen slightly thanks to government stimulus, this doesn’t represent the full picture of Americans’ relationship with credit during the pandemic. The Pew Research Center finds that about half of lower-income U.S. adults in households that lost income during the pandemic have taken on debt to stay afloat, while about three in 10 adults – and a higher proportion of Black and Hispanic adults – say they worry every day or almost every day about their level of debt. Due to the pandemic, many more Americans are struggling to even obtain access to affordable credit due to being credit-invisible or possessing low credit scores.
Many misconceptions exist about the 160 million Americans characterized as nonprime. Contrary to what some people may assume, nonprime consumers are not necessarily low-income: Many are teachers, engineers, nurses, insurance agents, marketing coordinators, and entrepreneurs. They watch their credit score closely and conscientiously look for opportunities to improve; nonprime Americans check their bank account balances 50% more often than prime Americans, and two-thirds of nonprime consumers consider themselves careful spenders. They aren’t nonprime primarily because of poor spending habits; nonprime consumers are disproportionately more likely to have experienced a catastrophic financial event, such as a medical emergency.
Yet the pandemic taught us that living paycheck to paycheck can become a reality for many, including many with prime credit scores. Consumers, regardless of credit score, are turning to alternative financial strategies to stay afloat. Nonprime Americans and their prime peers are both struggling. Both prime and nonprime Americans are using their stimulus money on essentials: According to our February Non-Prime Tracker, 32% of prime and 50% of nonprime consumers spent at least some of their most recent stimulus checks on groceries, while 23% of prime and 38% of nonprime consumers used stimulus checks for utility bills.
But stimulus checks do not last forever. Lenders need to be there for consumers during these difficult times by offering flexibility and helpful options. Well before the pandemic began, Elevate began building payment assistance tools, like payment grace periods, deferment options, no late fees, interest rate reductions, and principal and interest rate forgiveness. Accordingly, when COVID-19 hit the U.S., we were able to quickly expand our payment assistance offerings. In 2020, these tools allowed 80,000 consumers to modify their payment plans, usually by filling out a simple online form, at no incremental cost.
Financial technology is breaking down the barriers that previously stood between many Americans and the possibility of financial security. But with this expansion in opportunity comes a responsibility on the part of lenders to help consumers weather the storm. We have learned that we do better as a company when consumers do better and providing consumers with the flexibility they need during this trying time has only made that sentiment stronger.
*All views and endorsements expressed in this blog/article are solely those of the author and do not necessarily reflect the views or endorsements of the Financial Health Network