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New data from the New York Fed shows Americans have never been more worried about paying their debts than they have been since the pandemic began.
The central bank’s monthly consumer expectations survey found that the probability that Americans believe they won’t be able to make their minimum debt payments in the coming months has risen to the highest level since April 2020.
The increase was most pronounced among adults over 60, people without a college degree, and people with annual household incomes of less than $50,000, according to a December survey of about 1,300 households by the New York Fed.
Matt Schultz, chief consumer finance analyst at LendingTree, said this is a “time of uncertainty for many Americans.” As the labor market softens, a growing number of adults are “worried about their current jobs, worried that it will take forever to get another job, worried that it will be harder to get credit, and worried about whether they will be able to pay off all their minimum debts in the coming months,” he said.
But even one missed payment can have a lasting financial impact, according to research from LendingTree.
Missed payments result in greater harm to prime borrowers.
According to a new report from LendingTree, one missed payment can lower your credit score by about 80 points on average. In October, the site’s researchers analyzed 100,000 credit reports.
The report found that consumers who missed a payment at least once had an average score of 553, about 80 points lower than consumers with a perfect payment history. Credit scores typically range from 300 to 850.
“Even just a few days late on paying your credit card bill can be damaging,” Schultz said. “You can incur late fees of up to about $40 each time. But the biggest hit comes after.”
A lower credit score can result in lower credit limits, higher interest rates on new loans, and decreased access to credit overall. In general, the higher your credit score, the easier it is to get a loan and the better the loan terms.
Research also shows that the impact of credit scores is worse for borrowers with better scores. “The bigger the market, the steeper the decline,” said Ted Rothman, senior industry analyst at Bankrate.
If your score is near perfect, a single delinquency in a 30-day period can cost you more than 100 points, Rothman said.
If your score is low, the consequences of missing a payment are less severe, he added. Borrowers in riskier credit tiers typically have some credit damage, so “a new credit tier probably won’t hurt as much,” Rothman said.
The experts also said that the damage will increase depending on the degree of delinquency, and referred to the difference between those who are delinquent for 30 days or more and those who are 90 days or more past the payment deadline, which is called “late delinquency.”
Contact your lender before you miss a payment
If you’re about to miss a payment, “ask your lender for a moratorium,” Rothman says.
“A lot of people are going to work with you and maybe suspend payments or lower interest rates,” he said. “You may be able to avoid damage to your credit score by talking early and getting permission to make fewer payments this month, or even not pay at all.”
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