How inflation can affect your credit score

(WKBN) – Although inflation is not a direct credit score factor, its influence can have a big impact.

The United States is currently experiencing historic inflation. From gas and groceries to housing and daily necessities, everyone is paying more.

These daily costs can have a subtle impact on your credit score. Consumers may be tempted to extend credit to purchase items that may now be beyond their budget, such as televisions, cars, appliances, furniture, etc.

Also, if you’ve taken advantage of historically low mortgage interest rates over the past two years, you could end up with a lot of house but a slightly higher mortgage payment than expected.

Since interest rates were so low, many buyers got caught up in bidding wars that pushed them to higher amounts.

Unaffordable payments, whether for a house, car or furniture, can quickly become unmanageable, according to credit reporting agency Experian.

When the price of everyday items skyrockets so much that you’re forced to choose between buying groceries or making a payment on credit, late payments or missed payments can hurt your credit score.

If you use credit cards, creating higher balances, this also impacts your credit score, even if you make timely payments. High balances don’t help your credit score.

Experian suggests paying a lot of attention to purchases on credit, especially larger ones, which can mean putting off buying a car or house.

To get some extra money, it might be time to sell high-value assets like a car, vacation home, RV, or other property. Don’t plan on replacing the item you sold anytime soon.

Credit scores, on average, have increased during the pandemic, especially for those with an average score of 581 (580 is considered low). Those scores rose, on average, to 601. But those with higher scores didn’t see much change.

According to the Center for Microeconomic Data at the Federal Reserve Bank of New York, there was a sharp increase in total household debt in the first quarter of 2022, rising by $266 billion (1.7%) to reach 15, $84 trillion. The balance is higher than it was at the end of 2019, before the pandemic.

Even though credit card balances saw a typical seasonal decline in the first quarter of 2022, they are still $71 billion higher than in the first quarter of 2021, and they saw a substantial year-over-year increase. ‘other.

Auto loan balances increased by $11 billion in the first quarter of 2022 and student loan balances increased by $14 billion.

In the first quarter of 2022, 229 million new credit accounts were opened, up from the previous quarter and slightly above pre-pandemic levels. Defaults have increased slightly, but remain at historically low levels.