Borrowell, a fintech company in Canada, published an analysis on the credit scores of the Canadian public. The company credit reports of ten lakh Canadians from both large and small cities of Canada and their payment trends.
Borrowell Study Findings
The impact of the coronavirus pandemic is no secret. While the financial backgrounds of people differ, the virus undoubtedly significantly affected the financial livelihood around the globe.
Spending mindset shifts, relief measures on different levels, changes in lifestyle, and effects on personal finances have certainly influenced payment trends and credit scores.
Borrowell is an agency that facilitates its clients with credit scores updates free of charge. It studied credit scores in Canada and found:
- In Canada, 1 million Borrowell members gained 18 points more as compared to the previous year’s first quarter i.e. Q1 2020.
- In comparison with 1st quarter of 2020, the average percentage of missed payments shrunk by 33%
- Bill payments are directly/ indirectly governed by the consumer’s credit scores. Borrowell’s study found that people with exalted credit scores are 432 times more expected to not miss their bill payments than consumers with deficient credit scores.
- In Q1 of 2020, 3/10 company members skipped their payments. However, after the pandemic – 2/10 consumers missed the payments on average.
Photo by Visual Stories via Unsplash
Possible Reasons behind Improved Credit Scores
While the past year was destruction in myriad segments like the restaurant industry, travel industry, and transport industry – it seems that the virus didn’t only contribute to the disadvantages!
The Canadian government provided relief, the public got cautious and seriously attended to its spending habits. Activities were partial, if not totally, blocked. Expenses like; kids schooling, hoteling, shopping, workout; were not happening at a pace pre-Covid.
Because of work from home and government ease programs, expenses decreased while average income stayed the same. It was one of the factors favoring consumer’s revamped credit scores!
Burnaby, Markham, Vancouver are the cities with the highest average credit scores. Furthermore; consumers in Toronto, Markham, and Montreal cities had the lowest average skipped bill payment rate.
Therefore, the possible basis for better credit scores turn out to be:
- Government aid programs
- Reduced expenses
- Maintained income – work from home facility
- Attentive spending style
The average Canadian credit score advanced to 667 points, counted in the fair category, from 18 points, which is considered as a below-average category.
Why Are Credit Scores Important?
Importance starts with knowing what a credit score is and why we need to maintain a reasonable credit score.
In the simplest of words, it’s a score acquired by anyone who uses credit. How responsible or irresponsible you are regarding credit use, typically decides your credit score.
To calculate your credit score, financial institutions survey your credit report and try to find out whether you have the potential to repay loans or not – obviously based on your credit history.
This score makes you credible and incredible in the eyes of a lender if you have got a good credit score!
- What is a Good Credit Score?
| Credit Score | Interpretation |
| 741 or more | Excellent credit score |
| 713 to 740 | Good credit score. You may get a fine variety of credit products and interest rate offerings. |
| 660 to 712 | Fair to average credit score. |
| 575 to 659 | Below-average credit score. |
| 300 to 574 | Poor credit score. A lender will be lending at high risk, you’ll be offered higher interest rates. |
A better score means you are trustable and a low-risk borrower. Similarly, a poorer score means you are a high-risk borrower!
- What decides your credit score?
Some factors which directly influence your credit score are as follows:
Payment History: This makes up 35% of your credit score. Paying bills timely and reduced missed payments will boost this score.
Credit Utilization: It counts as 35% in your credit score.
No. of credit inquiries: This makes up 10% of your credit score. Types cover soft and hard inquiries. For instance, if you inquire for credit, in large amounts, and shorter periods – it counts in a hard query and may disturb your impression in the face of lenders.
Credit mix: It accounts for 10% of your score on average. Credit types include credit cards, utility bills, car loans, mortgages, student loans.
Credit history: 15% of your credit score is decided by your credit history. Creating one takes time, some lenders prefer a borrower having a minimum of 6 months history while others prefer a borrower with a history of at least 12 months i.e. one year.
There are several ways you can improve a struggling credit score. For example, to upgrade credit scores, consumers obtain secured credit cards in Canada.
Canadians with poor credit scores
Though the majority of credit scores developed on average, there were still some parts in Canada where people struggled to pay rent and survive – the people with below-average credit scores.
They faced difficulty in maintaining their credit health. Some of them, despite lower credit scores, had to borrow at higher interest, sadly leading to poorer scores and becoming high-risk borrowers.
Big businesses closed down, many faced unemployment totally and a decreased salary. People reported gloomy effects on their savings and investments. 26% of people reported that all these factors increased their dolor of paying bills in time.
Canadians purchasing and spending habits
In contrast with the pre-Covid normal conditions, the Canadian public seems to be burning less cash. They have also been avoiding employing physical payment methods than 1st quarter of 2020.
Economic uncertainty from mid-2020 has influenced consumer spending in Canada. 58% of Canadians think they are splashing out money less overall post-virus. Statistics befriend a view the Canadian public would take a time to reach cash usage levels as before!
Since cash usage is reduced to this level, reports suggest businesses strategize the e-commerce options for increased profits and meeting current consumers’ demand.
Let’s dig in deeper into an average Canadian modified preference before and after the coronavirus, regarding:
- Cash Handling and ATMs
- Credit Card/ Debit Card Usage – Electronic Transfer
- Contactless Payments
- Food Delivery Industry Boost
- Utilization of E-Commerce Platforms
- Cash Handling and ATMs
Covid-19 pandemic has influenced the new normal in terms of digitalizing communication, shopping, studying, working, and even paying.
As the virus mainly spreads through touch and 1.42 million cases immensely affected the public in Canada – they are well aware to fight shy of unnecessary and excessive touch.
This is why 37% report that they get anxious while contacting the debit/ credit card machines.
- Credit Card/ Debit Card Usage – Electronic Transfer
For many years, we have observed a shift in payments not only in Canada but around the world. The pandemic, however, has spurred the payment landscape.
Banks and other financial institutions have made electronic transfers so much more convenient and user-friendly. The ease of doing it from the comfort of home, and its edge to avoid unnecessary contact has encouraged Canadians to use e-transfer 25% more.
- Contactless Payments
The virus spread awareness has made people conscious of their daily routine actions. They now plump for contactless payment options instead of cash and ATM usage.
Photo by Clay Banks via Unsplash
47% and 42% of Canadians are using credit cards and debit cards more respectively.
Additional perks of contactless payments can be:
- Secure Transactions
Encryption and data technology protect fault purchases. Compared to other payment forms, tap-to-pay is more secure and dependable.
- Loyalty Benefits
We all are well-aware of these, right?
We all are quite familiar with the messages and emails like: 30% off at ABC pizza for XYZ card users! Banks gift loyalty points, incentives, and cashback for loyal contactless payment facility clients.
- Usability
Dealing with cash isn’t a worry at the checkout. Moreover, limited lines and speedier transactions are the main benefits of contactless installment.
- Effectiveness in Operation
A contactless payment facility decreases the time that organizations spend on working card machines or tallying cash.
It is quicker, with lesser labor force prerequisites; businesswise.
- Payment devices Adaptability
Bid farewell to cumbersome wallets once you go credit only. The payer only needs his mobile set to make payments.
- No Additional Costs
Transaction cost is fixed. This facility doesn’t draw in any extra handling expense.
- Savior from Frauds
Digital payment technology is secure and encoded to debilitate any hacking endeavors. Payment security implies that organizations get their cash with no debates. E-transfers are fraud-proof and issuing banks have a team to ensure that.
- Better Client Experience
Contactless payments add to the loyalty of customers towards a brand. Studies have shown that organizations offering electronic payment options give a smoother and speedier checkout experience to the clients
- Food Delivery Industry Boost
There’s been a development from offline to on the web, from eating in a café to requesting at-home delivery. The pandemic has accelerated the pace of the online food industry!
Photo by Eric Mclean via Unsplash
Where the public cut its spending in various segments of life as compared to normal routine pre-pandemic, statistics show that 58% of Canadians spent more on food overall instead of 54% from 2020’s September.
Food delivery was a lifeline to restaurants in the pandemic lockdown and a way of enjoyment for home-stuck adults and kids.
Since the social distancing concept is not fading away any sooner – despite restaurants are now open for dine-in, the online food industry is here to stay.
- Utilization of E-Commerce Platforms
E-Commerce platforms proved an immense success in pandemic times. Not only did the already existent platforms made dollars, but also myriad e-commerce start-ups budded in the lockdown.
Unlike pre-pandemic, 49% of Canadians reported using e-commerce services more often.
Cashless Transactions – A Contrary Perspective
Digitalizing routine work and payments are supporting modernism and improving ease of access.
However, this too has some society hurting aspects!
People living on the streets particularly depend on cash and Covid-19‘s cashless arose challenges for such people.
“We are not accepting cash. Sorry for the inconvenience!” We are quite familiar with this, isn’t it?
At the point when the pandemic hit, numerous organizations began requesting that individuals use cards rather than cash out of dread of sending COVID-19 by means of cash. A few stores even quit accepting cash inside and out.
The COVID-19 pandemic has accelerated the, as of now, declining utilization of money in Canada as more individuals have changed to utilizing debit and credit cards, and that change is harming individuals whose vocations rely upon cash.
- Why are some people struggling?
Social work professor, Jeff K., says that people on the streets lack proper identification, home address, verification documents to open a bank account or own a debit/ credit card – then how come these people survive and support themselves.
This portion of the society may face exclusion. They can’t accept e-transfers. Some stores have stopped accepting cash notes.
Jeff says that despite digital payments are secure and convenient – cash transactions enable the public to make sane decisions regarding how much they’ve spent and aren’t overspending?
Cards don’t enable the physical view of cash – cash usage always alerts people on how much they are burning.
Last Word
Bad and good go hand in hand. Where cashless transactions contributed to challenges of the low-paid sector – digitalization opened doors for new business ventures and boosted profits in myriad segments.
Pandemic enabled us to make sane spending decisions which in turn improved average credit scores across Canada!
