Average Canadian credit score improved during pandemic, Borrowell study finds

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Government assistance programs appear to have helped many Canadians avoid missed payments over the past year, which resulted in average credit scores actually improving during the coronavirus pandemic, according to new research from Borrowell, a fintech company that tracks credit.

An analysis of the credit reports of more than one million Canadians, including those in 20 of the largest cities in the country, found that missed payments fell by a third in the first quarter from a year ago — from three missed payments for every 10 consumers to just two. A missed payment is defined as any payment recorded on a credit report that is at least 30 days past due.

Over the same period, Borrowell found that the average Canadian credit score increased — by 18 points to 667 — pushing it into the “fair” category from “below average” a year ago.

“Government relief measures, along with cautious spending and improved financial habits, may have allowed many Canadians to reduce missed bill payments and improve their credit scores during the past year,” the fintech said.

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However, the analysis found “staggering” disparity among Canadians, with those already dealing with low credit scores hit much harder despite the availability of programs to replace lost income like the $2,000 a month Canada Emergency Response Benefit (CERB).

Consumers with low credit scores were 432 times more likely to miss bill payments than those with excellent credit scores.

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“Many Canadians have been living paycheque to paycheque and struggling to pay rent,” said Andrew Graham, chief executive of Borrowell. “These consumers are having an extremely difficult time staying afloat financially and improving their credit health, even with the various financial relief measures introduced in the past year.”

The Borrowell analysis found that British Columbians with the lowest credit scores had the highest rate of missed payments in the country, with the credit reports of the average consumer with poor credit quality showing close to two missed payments.

Graham said people with low credit scores typically have to borrow at high interest rates and with stringent repayment terms, putting them in a “vicious cycle of high-interest debt, missed bill payments, and damaged credit scores.”

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Credit scores are calculated by credit bureaus such as Equifax and TransUnion, and are based on credit use and payment history. These factors are distilled into a number between 300 and 900, which is used by lenders and credit providers to determine creditworthiness.

Shortly after the COVID-19 pandemic was declared in March of 2020, the Canadian government created programs to supplement lost income, while banks gave temporary deferrals for credit and mortgage payments.

The initial CERB income benefit was extended and is set to run out in September, but Ottawa has indicated it will be replaced with another program to tide over Canadians who have lost work due to the pandemic but don’t qualify for traditional employment insurance benefits.

Financial Post

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