Here’s How Much Your Credit Score Is About To Crash If You’re In Hurricane Irma’s Path

Wednesday, September 6, 2017
By Paul Martin

by Tyler Durden
Sep 6, 2017

If you count yourself among the unlucky residents of Southern Florida where Hurricane Irma looks likely to make her continental U.S. landfall, you may want to take notice of a new study just published by Kelly Edmiston of the Federal Reserve Bank of Kansas City which details the devastating toll that hurricanes can take on your hard-earned credit score.

Edmiston’s study, entitled “Financial Vulnerability and Personal Finance Outcomes of Natural Disasters,” limited its analysis to the effects of category-1 storms but still found that credit scores are typically crushed by 50 points for the average household and even more for families that are already on weaker financial footing before storms roll through.

In general, the results suggest that those who are financially better prepared for a natural disaster tend to have better financial outcomes. The cumulative effect of the interaction variables is significant, even for relatively mild storms Tracts with low share of the population with unpaid bills (arbitrarily set at 1 percent), the aggregate effect of a category 1 hurricane on credit score was a reduction of 16.2 percent. For a tract with an especially high rate of unpaid bills (arbitrarily set a 5 percent), the effect is strikingly larger in magnitude at -81.2 points. The median (3.09 percent) yields an average reduction in credit score of 46.4 points. Thus, half of tracts affected by category 1 hurricanes saw an average reduction in credit score of more than 46.4 points. This result would drop an average credit score of 700 to just over 650, which would likely significantly affect credit terms on a new loan. These cumulative effects were significantly higher than expected ex-ante. Results from Specification 2 show a very similar pattern, with credit score reductions ranging from 17.9 percent with a 10 percent credit card utilization rate to a staggering 71.2 percent for those with a 40 percent utilization rate.

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