Should banks beware credit score ‘grade inflation’?

Government assistance and a pause on normal credit practices boosted many credit scores during the pandemic. Should lenders adjust their benchmarks for creditworthiness? The answer is complicated.

Credit score “migration” isn’t a new phenomenon. Scores for individual consumers rise and fall by definition. If someone gets behind on a loan, that counts against their score. If they apply for a lot of credit cards, that’s a hit, too. Keeping current on an account helps keep the score up.

The credit score system has been a basic of consumer credit for decades now, and the age of mobile phone apps for tracking scores has only heightened consumers’ own attention to these numbers. But in the last few years, unprecedented policy steps taken in response to the Covid pandemic shifted credit scores broadly — “migration” with a capital “M.”

Some key forms of credit went into “suspended animation” for a time. Mortgages became eligible for forbearance, federal student loan payments were suspended, and interest on those loans was reset to 0% for the duration. Direct stimulus payments helped consumers pay down debt.


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