The pandemic disrupted many Americans’ finances, and you might expect credit score damage to be a given. But according to a new NerdWallet survey, more than 1 in 4 Americans (27%) say their credit score has gone up since the beginning of the COVID-19 pandemic, while just 14% say their credit score has decreased. Another 9% of Americans don’t know if their credit score has changed during this time.
The NerdWallet survey of more than 2,000 U.S. adults conducted online by The Harris Poll asked Americans how their credit has fared since the pandemic began in March 2020 and why they think that is. We also asked about common credit misconceptions.
Debt plays a role in many Americans’ credit scores: About 7 in 10 Americans who say their credit score went up since the start of the pandemic (69%) attribute the gain to paying down/off debt. And nearly half of Americans who say their credit score decreased since the start of the pandemic (47%) attribute the decrease to taking on or increasing debt.
Better credit spurs financial action: Almost two-thirds of Americans who say their credit score has gone up since the start of the pandemic (65%) have taken a financial action as a result — like applying for a rewards credit card (30%) or a mortgage or home equity line of credit (25%).
Credit misconceptions abound, particularly among younger generations: Nearly half of Americans (46%) incorrectly believe that closing a credit card you don’t use can help your credit score, including 54% of Generation Z (ages 18-25) and 55% of millennials (ages 26-41).
Many expect to take steps to boost credit this year: More than 3 in 5 Americans (61%) plan to take action over the next 12 months to improve their credit, with nearly half of Americans planning to pay off/down debt (49%).
“Credit scores play a huge role in consumers’ financial lives, impacting not only access to loans and credit cards but also often car and homeowners insurance rates, among other things,” says Kimberly Palmer, personal finance expert at NerdWallet. That’s why it’s worth putting effort into understanding and building your credit score, especially after the tumultuous last couple of years.”
Debt impacts credit scores of many, for better or worse
Whether their credit scores went up or down, many Americans attribute the change to debt, either paying it down or going into it. Of Americans who say their credit score decreased since the start of the pandemic, nearly half (47%) attribute the decrease to taking on debt or increasing their debt load. Around a third of those who say their credit score decreased since the pandemic began think it decreased because they made a payment 30-plus days past the due date (33%), and the same proportion think it’s because one or more of their accounts went into collections (33%).
Almost 1 in 10 Americans whose credit score decreased since the start of the pandemic (9%) aren’t sure why. The same is true for 11% of Americans whose credit score went up during this time — they don’t know why it happened.
Nearly 7 in 10 Americans who say their credit score has gone up since the start of the COVID-19 pandemic (69%) say they think it’s because they paid off/down debt. More than a quarter of those whose scores went up (27%) attribute it to increasing their credit card limits.
“While paying down debt can certainly improve your credit, the amount of debt you have is not the only factor used to calculate your score. Making on-time monthly payments of at least the minimum amount due, maintaining a low credit utilization rate and keeping older credit card accounts open can all help contribute to a higher score,” Palmer says.
Many with elevated credit scores are using them
Those with improved credit are taking advantage of it. Almost two-thirds of Americans who say their credit score went up since the start of the pandemic (65%) say they’ve taken financial action as a result of their higher credit score, with the top actions being applying for a rewards credit card (30%) and/or a mortgage or HELOC (25%).
Millennials whose credit improved since the start of the pandemic were more likely than older generations to take many of these actions, such as applying for a rewards credit card — 43%, compared with 23% of Gen Xers (ages 42-57) and 18% of baby boomers (ages 58-76). The same is true for applying for a mortgage or HELOC; 37% of millennials with bumped-up credit scores have done this since the beginning of the pandemic, compared with 24% of Gen Xers and 3% of baby boomers with elevated credit scores.
“Leveraging your credit score to apply for more loans or new credit cards can give you access to more things, but it’s also a good idea to avoid overextending yourself. Taking on more debt than you can comfortably pay off can end up hurting your credit score down the road,” Palmer says. You can use an online debt-to-income ratio calculator to help you decide what you can afford.
Credit misconceptions may lead some to not understand changes
It makes sense that some Americans whose credit scores have changed aren’t sure why — there are many misconceptions about credit and what causes it to grow or weaken. And these misconceptions can be costly: Nearly half of Americans (46%) believe that leaving a small balance on your credit card is better for your credit score than paying it entirely off each month. This is false and can cost them in interest, which is calculated on the daily average balance, not the small balance left on the card at the end of the month.
Another misconception held by nearly half of Americans (46%) is that closing a credit card you no longer use can help your credit score. In fact, closing a credit card could hurt your credit in two ways: It can increase your credit utilization — or the amount of available credit you’re using — and decrease the average age of your accounts. There are cases where closing a card can make sense, but in general, you want to keep old accounts open and active.
Younger Americans are more likely to think that closing a credit card would help their credit score. More than half of Gen Zers (54%) and millennials (55%) say this, compared with 43% of Gen Xers and 38% of baby boomers. And this wasn’t the only misconception most likely held by younger generations.
Credit misconceptions, by generation
Gen Zers are least likely to know it’s possible to get an accurate credit score for free — 31% say this is false, compared to 17% of millennials, 16% of Gen Xers and 11% of baby boomers — but your scores should be pretty accessible. Your credit card issuer may provide this to you, and you can also get your free credit score from NerdWallet.
Many plan to take action over the next year to build credit score
More than 3 in 5 Americans (61%) plan to take action over the next 12 months to improve their credit. Millennials, in particular, prioritize credit-building: 80% say they plan to take action over the next year to build their score, compared with 70% of Gen Zers, 65% of Gen Xers and 44% of baby boomers.
Close to half of Americans (49%) plan to pay off/down debt to improve their credit over the next 12 months. Paying down balances on credit cards and lines of credit, such as a HELOC, decreases your credit utilization ratio and can also reduce financial stress.
Check your credit score and credit reports. More than 4 out of 5 Americans (82%) incorrectly believe that your credit reports include your credit score. They don’t. But you can get a free credit score from some credit card issuers or a site like NerdWallet. In addition, you can request your credit reports for free from the three major credit bureaus — Experian, TransUnion and Equifax.
Over a quarter of Americans (27%) say they’ve never requested their credit reports, but you can get all three for free by going to AnnualCreditReport.com. Generally, you can get each report for free once per year, but through the end of 2022, you can get your complimentary reports weekly.
Dispute credit report errors. Once you pull your credit reports, peruse them for any errors. An error on your credit report can hurt your credit score, but you can dispute any inaccuracies you find to get them removed.
Inaccurate information may just show up on one credit report, or it might exist on two or all three. Ensure you review the reports from all three major bureaus and follow the steps to dispute credit report errors. Each bureau has an online dispute process, but you can call or write to the bureau to get started.
Learn what does (and doesn’t) impact your credit score. The two factors that affect your credit most are on-time payments and credit utilization. A payment that’s 30 or more days late can haunt your credit report for years, so make sure you pay at least the minimum amount by the due date each month. As for credit utilization, the lower, the better, but aim to use less than 30% of your credit limits at any given time.
The age of your credit accounts, the mix of types of credit you have and the recency with which you applied for credit can also impact your credit score, but not as much as payment history and credit utilization. In addition, your credit score isn’t affected by your spouse’s credit, your age or your salary.
“Credit scores hold a lot of power over Americans’ financial lives but are frequently misunderstood,” Palmer says. “If you are in the market for new loans such as mortgages or auto loans, it’s especially worthwhile to aim to improve your credit over the next year, so you can qualify for the financial products that will help you achieve your goals.”
This survey was conducted online within the United States by The Harris Poll on behalf of NerdWallet from Aug. 18-22, 2022, among 2,052 U.S. adults ages 18 and older. The sampling precision of Harris online polls is measured by using a Bayesian credible interval. For this study, the sample data is accurate to within +/- 2.8 percentage points using a 95% confidence level. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact Mauricio Guitron at [email protected].