5 THE EARLY EFFECTS OF COVID-19 PANDEMIC ON CREDIT APPLICATIONS
We start by considering all consumers together. As shown in Figure 1, the volume of inquiries
declined in all categories, and the decline was gradual and pronounced. The drop was the largest
among auto loan inquiries and smallest among new mortgage inquiries (which did not start
declining appreciably until week 3). By the last week of March, by which point a good part of the
country was under stay-at-home orders, auto loan inquiries dropped by 52.4 percent,
9
new
mortgage inquiries by 26.9 percent,
10
revolving credit card inquiries by 39.7 percent,
11
and
unspecified and other inquiries by 34.6 percent.
12
While some of the underlying mechanisms contributing to these declines are probably the same
across the inquiry categories, there are likely important differences, too. On the demand side,
the pandemic led to a surge in unemployment and an increase in economic uncertainty. These
forces likely reduced the demand for credit tied to the purchase of durable goods (e.g., cars and
homes), which are expenses that often can be deferred.
13
At the same time, the pandemic may
have had offsetting effects on the demand for revolving credit cards since transaction demand
likely decreased while the demand for the possibility to borrow likely increased. As miles
traveled declined due to social distancing measures and stay-at-home orders, the demand for
cars was likely further reduced, possibly explaining why this category saw the largest decline. In
addition, car and home purchases typically have a strong in-person component, making online
purchases less attractive even if available. One possible explanation for the lower decline in
home purchases is that such purchases take longer to execute, and inquiries in March may be
partly reflecting decisions to purchase a new home prior to the onset of the pandemic.
14
9
According to Autodata Corporation, new vehicle sales dropped by 33 percent between February and March 2020.
No weekly statistics are provided. See http://www.motorintelligence.com/
.
10
According to the National Association of Realtors, sales of existing homes dropped by 8.5 percent between
February and March 2020. No weekly statistics are provided. See
https://www.nar.realtor/research-and-
statistics/housing-statistics/existing-home-sales.
11
Retail revolving credit cards made up 20 percent of inquiries within the revolving credit card category in the month
of March in 2013 through 2019. Not surprisingly, the drop in the number of these inquiries in March 2020 was
significantly larger at 70 percent than the drop among general purpose credit cards at 33 percent.
12
The downward pattern observed in this group indicates that the general pattern of a decrease in credit inquiries
observed for the specific products (that make up 61.4 percent of inquiries) also holds more broadly for this group
(that makes up 25.4 percent of inquiries).
13
By delaying durable goods purchases, consumers can help smooth consumption. Research suggests that the
precipitous decline in car purchases during the Great Recession is largely explained through this timing of car
purchases dimension (see Bill Dupor, Rong Li, Saif Mehkari, and Yi-Chan Tsai. 2018. The 2008 U.S. Auto Market
Collapse. Federal Reserve Bank of St. Louis Research Division Working Paper 2019-019A.
https://doi.org/10.20955/wp.2018.019).
14
For mortgage loans, there is also the consideration that a lender may pull the credit report of the consumer several
times during the underwriting process and prior to the consummation of the loan.