COVID-19: Impact on Credit Scores and Missed Bill Payments by City [Study]

Since the introduction of COVID-19 measures in March 2020, many Canadians have needed to adjust their lifestyle and financial habits. While many workers lost their jobs and relied on financial relief measures such as Canada Emergency Response Benefit (CERB) and mortgage payment deferrals to remain afloat, others were able to maintain a stable financial situation and even sought to purchase larger homes in anticipation of continued remote work trends. 

These relief measures, lifestyle changes, and financial shifts have influenced certain credit score and bill payment trends over the past year - often revealing a divergence between how COVID-19 impacted the financial livelihood of different population segments.

To understand how credit score and missed payment trends across Canada have changed during COVID-19 measures, Borrowell, a fintech company that offers free weekly credit score updates, analyzed credit scores and credit reports of 1,015,369 Canadians, including those in 20 of the largest cities in Canada from Q1 2020 to Q1 2021. 

Note: Credit scores were Equifax credit scores Equifax Risk Score 2.0 (ERS 2.0)), which are based on Equifax's proprietary model.

While we know financial disparity exists between consumer groups, this study tries to quantify the gap in financial security by comparing the average missed bill payment rates of consumers in the lowest credit score band and those in the highest credit score bands.

Key Findings

• The average credit score of over 1 million Borrowell members across Canada increased by 18 points in the past year, from 649 (below average) in Q1 2020 to 667 (fair) in Q1 2021

• Over the same period, the average number of missed payments per consumer decreased by 33% from 0.300 to 0.200 per credit report, or from 3 missed payments per 10 consumers to 2 missed payments per 10 consumers

• Consumers with poor credit scores (300 to 499) have an average of 1.3 missed payments on their credit report, while consumers with excellent credit scores (740 to 900) have an average of only 0.003 missed payments on their credit report

• Consumers with low credit scores are 432x more likely to be missing their bill payments compared to those with excellent credit scores

What is a Credit Score and Why is it Important?

A credit score is a number ranging from 300 to 900 that represents the creditworthiness of an individual. Credit scores are calculated by credit bureaus, either Equifax or TransUnion, based on information available on credit reports such as payment history, credit utilization, and length of credit history. You can learn more about how credit scores in Canada are calculated here.

In general, Canadians fall into distinct categories based on their credit score, ranging from poor to excellent:

• Poor credit: 300-499

• Poor to below average credit: 500-659

• Fair to good credit: 660-739

• Excellent credit: 740-900

Higher credit scores allow consumers to qualify for more financial products and at more favourable terms. For example, a credit score of around 680 or above is generally required to qualify for the best mortgage rates, and rental applicants are often evaluated by the landlord based on their credit score and report, which means Canadians with low credit scores can face significant roadblocks to financial and personal goals.

There are 5 main components in a credit score calculation, each contributing a different weight:

• Payment history (35%)

• Credit utilization (30%)

• Credit history (15%)

• Credit mix (10%)

• Credit inquiries (10%)

Payment history is the largest factor that impacts credit scores. Making payments on time is seen as a positive indicator of credit-worthiness, while missed payments - defined as any payment recorded on a credit report as at least 30 days past due by a creditor or lender - can severely reduce a consumer’s credit score. Based on data from Borrowell members, even a single missed bill payment can lower credit scores by 150 points.

Missed Payments Fell by 33% Year-Over-Year

Findings from this credit score and missed payments study suggests that 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. 

Between the first quarter of 2020 and the first quarter of 2021, the average number of missed payments per consumer decreased by 33% from 0.300 to 0.200 per credit report. Over the same period, the average credit score of members increased by 18 points to 667, bringing the credit score into the “fair” category from the “below average” category.

That said, not all Canadians experienced these improvements equally over the past year. 

Average Consumers with Poor Credit Scores Have at least One Missed Payment on their Credit Report

Canadians in the lowest credit score range (300-499, or “poor”) have an average of 1.295 missed payments on their credit reports, while Canadians in the highest credit score tier (740-900, or “excellent”) only average 0.003 missed payments on their credit reports - an astounding 432x difference.

By geography, consumers in B.C. cities in the lowest credit score range (300-499, “Poor”) have the highest rate of missed payments among the cities included in the study, with 1.840, 1.795, 1.781, and 1.724 missed payments per credit report in Burnaby, Vancouver, Victoria, and Surrey respectively. This indicates the average consumer in this segment has almost two missed payments on their credit reports. In comparison, those with credit scores in the 740-900 range (“Excellent”) have virtually no missed payments on average.

Among the five Prairie cities in the study, consumers in the lowest credit score range in Calgary and Edmonton have missed an average of 1.483 and 1.431 payments, respectively. In contrast, there are just 0.001 to 0.002 missed payments per credit report for those in the “Excellent” credit score range. In major Ontario cities, Toronto and Mississauga consumers in the 300-499 credit score range have missed about one payment (1.090 and 1.220, respectively), while those in the opposite credit score range just have 0.001 missed payments per credit report.

The staggering difference between the rate of missed payments between Canadians with poor versus excellent credit scores illustrates the disparity between certain populations.

“It’s clear that consumers with low credit scores have experienced more difficulty over the past year than other Canadians,” says Andrew Graham, co-founder and CEO of Borrowell. “Many Canadians have been living paycheque-to-paycheque and struggling to pay rent. 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.”

“Low credit scores often prevent them from accessing affordable financial products to help them cover their bills. By only having access to financial products with high interest rates and stringent payment terms, these consumers end up stuck in a vicious cycle of high-interest debt, missed bill payments, and damaged credit scores.” 

What Canadians Can Do if They Can’t Make Payments

Missing bill payments is not a niche issue. According to a recent MNP study from March 2021, 53% of Canadians are $200 or less away from not paying bills and meeting debt obligations each month. If there’s a risk of not being able to miss one of your bill payments, or if you’ve already missed a payment, here are options to help manage the situation.

Ask for payment extensions: Contact creditors or utility providers as soon as possible to ask for payment extensions. These companies can often work out a payment plan with their customers, as they’re ultimately interested in being paid what they’re owed.

Refinance a loan: Refinancing a loan can help a borrower achieve a lower interest rate, reduce their monthly loan payments, and increase their likelihood of making the loan payment on time and in full.  

Consolidate debt: Debt consolidation involves combining numerous debts into one monthly payment, often at a lower interest rate. This can help them stay more organized, reduce the number of regular payments they need to manage, and reduce total interest costs.

See the infographic below for credit scores trends and average missed payments by cities across Canada and summary lists of the cities by highest and lowest credit scores; highest and lowest rates of missed bill payments; and largest differences in missed payments between the lowest and highest credit score bands.

Infographic: Credit Scores and Missed Payments by City

Credit Score and Missed Payments Stats by City

Cities With Highest Credit Scores, Q1 2021 and One-Year Change

1. Markham - Credit Score: 715 (+12) (Good Credit)

2. Vancouver - Credit Score: 703 (+16) (Fair Credit)

3. Burnaby - Credit Score: 697 (+17) (Fair Credit)

Cities With Lowest Credit Scores, Q1 2021 and One-Year Change

1. Moncton - Credit Score: 632 (+16) (Below Average Credit)

2. Edmonton - Credit Score: 645 (+15) (Below Average Credit)

3. Hamilton - Credit Score: 653 (+19) (Below Average Credit)

Cities With Highest Average Rates of Missed Bill Payments, Q1 2021

1. Edmonton - 0.280 per consumer, or 28 missed payments per 100 consumers

2. Surrey - 0.253 per consumer, or 25 missed payments per 100 consumers

3. Moncton - 0.241 per consumer, or 24 missed payments per 100 consumers

Cities With Low Average Rates of Missed Bill Payments, Q1 2021

1. Markham - 0.112 per consumer, or 11 missed payments per 100 consumers

2. Montreal - 0.114 per consumer, or 11 missed payments per 100 consumers

3. Toronto - 0.118 per consumer, or 12 missed payments per 100 consumers

Cities With the Largest Gap in Missed Payments Between Lowest and Highest Credit Score Bands

1. Burnaby: 1.840 missed payments per consumer with poor credit scores, 0.000 missed payments per consumer with excellent credit scores

2. Vancouver: 1.795 missed payments per consumer with poor credit scores, 0.000 missed payments per consumer with excellent credit scores

3. Surrey: 1.724 missed payments per consumer with poor credit scores, 0.000 missed payments per consumer with excellent credit scores

4. Moncton: 1.173 missed payments per consumer with poor credit scores, 0.000 missed payments per consumer with excellent credit scores

5. Hamilton: 1.151 missed payments per consumer with poor credit scores, 0.000 missed payments per consumer with excellent credit scores

Methodology

Borrowell analyzed historical credit scores and credit report data of 1,015,369 of its members, spanning from Q1 2020 to Q1 2021. Credit scores of Borrowell members are provided by Equifax, based on their proprietary Equifax Risk Score 2.0 (ERS 2.0) credit score model. 

The average credit score in a given quarter is defined as the average score calculated from the total number of credit reports pulled during that quarter. Average credit scores exclude values of zero. A credit score of zero is generated if the credit bureau does not have enough information from an individual’s credit report to successfully calculate a score; credit bureaus require six months of credit history on an individual’s credit report to calculate their credit score. 

The average number of missed payments is calculated as the total number of missed payments across all credit accounts listed in credit reports, divided by the number of credit reports analyzed. Cities are based on locations provided by members when they sign up for Borrowell. 

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