The COVID-19 pandemic is here and it divides American mortgage borrowers. For some it means higher credit scores and record low mortgage rates. For others the result has been job losses and a growing stack of unpaid bills.

We now face a virus that has brought illness to millions, shut down much of the economy, and threatens even more damage in the coming months and years. Such upheaval has also changed our financial behavior. Many of us now spend less and save more, and one byproduct is that credit scores are going up.

Regardless of your status today, no matter how well you’ve navigated the pandemic so far, there’s a need to protect your finances. Here’s what you need to know.

Credit Scores & Mortgage Rates

Freddie Mac has been tracking weekly mortgage rates since 1971 but has never posted anything like the numbers reported for the week of July 16th. Borrowers on average paid 2.98% for 30-year, fixed-rate financing. That’s the all-time record low but even so some borrowers paid less, a lot less. Mortgages priced at 2.5% and even 2.25% have been reported for weeks.

The catch, of course, is that not every borrower qualifies for such financing. While rates have been going down lender standards have tightened. Ellie Mae reports that in May the typical mortgage borrower had a 750 credit score, up substantially from the 728 average seen a year ago.

The higher scores required to get financing today reflect the grim reality that mortgage investors have become more cautious. There’s plenty of loan money out there but there’s also a lot of risk. More than 50 million people have filed for unemployment insurance this year and some 4 million mortgage borrowers have entered into forbearance plans according to Black Knight. Such numbers cause lenders to wonder if home values will hold up.

Credit Scores & Mortgage Borrowers    

It’s not just lenders who are nervous. Consumer spending habits have changed radically during the past few months. In the game of financial musical chairs no one wants to be left standing with unpaid mortgage bills.

For example, people are hoarding cash with the zeal of toilet paper shoppers. The government reports that bank deposits went from $13.3 trillion in January to $15.6 trillion in early July. That’s more than $2.3 trillion in cash that’s not being spent.

Most of us are spending less and saving more. Equifax reported the following numbers for the week of July 5th.

  • Auto loans. Some 63,100 auto loans and leases were originated. That compares with 516,000 a year ago. Subprime auto loans are becoming scarce. There were 7,300 for the week of July 5th versus 91,600 a year earlier.
  • Bank cards. Around 156,600 bank cards were originated for the week ending July 5th compared with 1.2 million a year ago.
  • First mortgages. Roughly 11,200 first mortgages were originated in the week ending July 5th. A year ago originations totaled 112,700.
  • Home equity lines of credit (HELOCs). HELOCs have become virtually impossible to get. Just 320 HELOCs were originated for the week ending July 5th compared with 2,052 a year ago.

The result of these trends is that credit profiles are generally improving. Experian reported this month that “despite unemployment rapidly growing to record levels throughout the U.S., the average amount of individual debt has consistently declined since the onset of the pandemic. Average credit scores are increasing at a higher rate than during this same period last year, and credit utilization — how much available revolving credit a consumer is using — is at a record low for the past five months.”

So yes, even in the midst of a pandemic you can get a higher credit score.

How to Grow Your Credit Score

What can you do to protect your credit standing in the pandemic economy? Several steps stand out.

First, check your credit reports. You can now get free on a weekly basis through April 20, 2021. Reports from Equifax, Experian and TransUnion are available at AnnualCreditReport.com. Look for factual errors and outdated items. Even small errors can lower credit scores. Contact the credit reporting agency for information regarding removal.

Second, get your credit score online and without cost. A number of legitimate sites offer free credit scores. The use of such sites represent “soft” credit inquiries so they do not lower your credit score.

Third, start a budget. The odds are overwhelming that you’re going out less, driving less, and spending less. Look at your numbers and see where you can reduce debts and add to savings.

Fourth, take a careful look at today’s mortgage rates. Mortgage rates are at or near historic lows at this writing. Does it make sense to refinance? Will you continue to own the property for enough time to recapture loan origination fees.

Fifth, look at your equity if you need cash. If you have real estate equity consider cash-out refinancing to replace your current loan instead of a HELOC. In practice, HELOCs are just about impossible to get while cash-out refinancing options are widely available. The attraction of a cash-out refinance is that you can refinance existing debt at a lower rate plus pull real cash from your home, all without moving.

To get started with mortgage financing or refinancing, get pre-approved by a lender. By letting a loan officer review your qualifications you can see what makes sense in terms of financing and refinancing. Also, there may be specific steps you can take to improve your credit score and standing as a loan applicant.