Consumer credit inquiries for auto loans, revolving credit cards and mortgages dropped sharply in March as unemployment surged, the Consumer Financial Protection Bureau said Friday.
The CFPB report illustrated how the coronavirus pandemic is hampering consumer lending. Inquiries to the credit bureaus for auto loans fell 52% between the first and last weeks of March, revolving credit card inquiries dropped 40% and home loan inquiries dropped 27%.
At the state level, the report found a correlation between the decline in credit inquiries for certain catetories and the rates of COVID-19 cases and unemployment insurance claims.
The CFPB measured applications for credit based on the number of credit pulls, or “hard inquiries” that lenders perform when a consumer applies for credit.
The drop in credit applications was more pronounced for consumers with higher credit scores, the report found. For auto loans, 49% fewer consumers with subprime credit scores below 500 sought credit in March, while consumers with super prime credit scores above 780 had a 67% drop. The differences were even larger for revolving credit cards, with a 34% drop in inquiries for subprime borrowers and a 59% drop for superprime borrowers. Inquiries for home loans fell 20% for subprime borrowers and 36% for super prime.
Although all states saw a drop in credit inquiries, the report found a substantial variation by state. For auto loan inquiries, states in the Northeast and California, plus Michigan and Nevada, experienced the largest drops, while Mississippi, Kansas, Oregon and the Mountain states of Utah and Idaho experienced more modest declines.
“The data indicate all types of inquiries dropped significantly and that consumers with higher credit scores have more flexibility in substituting away from applying for credit than consumers with lower credit scores,” the CFPB said in the 18-page report. “The observed drop in inquiries could be due to a drop in underlying credit demand, a drop in credit supply affecting inquiries either directly or indirectly by heightening consumers’ expectation of being turned down for credit, or a lack of opportunity for car and home sales to take place due to physical restrictions on movement and economic activity.”
