Americans historically lose financial ground and stack up debt in recessionary environments, and that’s what seems to be happening already at the mid-point of 2022.
According to a new Forbes survey, Americans have added $266 billion in household debt from the fourth quarter of 2021 to the first quarter of 2022, with two-thirds of consumers saying they’re “blowing through savings” as the price of just about every commodity churns upward.
That scenario leaves consumers vulnerable to a lower credit score and weaker leverage, as good credit is hard to get when a FICO credit score sinks below 660 or so.
That scenario is a harsh reality, too, according to Transunion. The credit scoring firm says that credit card balances and consumer debt delinquency rates are rising among Americans with a credit score below 660.
“If high inflation persists, the study projected delinquencies could rise to about 8.4% of total credit card loans by the first quarter 2023, up from 8% in the first quarter this year, TransUnion reported.
That would make consumer credit scores sink even further.
One Way to Boost Credit Scores
Consumers looking to cut personal debt often do so by consolidating multiple sources of debt into a single personal loan.
While that can make reducing debt easier, as long as the borrower aggressively pays the loan debt down, there’s also an under-the-radar benefit — it can boost your credit score, too.
That sentiment comes from a new study from Lending Tree, which found that consumers who used a personal loan of $5,000 to consolidate credit card debt added an average of 38 points to their credit score in a single billing cycle.
How is that possible?
The study, which tracked more than 1,500 anonymized LendingTree users who used a personal loan to consolidate credit card debt, examined how their credit scores were impacted one month after they took out a personal loan to pay off credit card debt.
In total, here’s what the study found:
Using a personal loan to pay down credit card debt can boost your credit score substantially. Consumers who used personal loans to pay off at least $5,000 in credit card debt saw their credit scores rise an average of 38 points between the month before the loan was originated and the month after, when it first appeared on their credit report.