Consumer credit applications have plunged this month as global financial fears hit home and Kiwis enter an unprecedented nationwide Covid-19 lockdown.
But applications to take on more debt have jumped for those with the worst credit ratings as people on low incomes stock up on essentials to put a "buffer" in place.
Data released today by New Zealand credit bureau Centrix shows demand for consumer credit has tumbled as most consumers look to avoid debt in the face of growing financial uncertainty linked to the worsening coronavirus epidemic.
Centrix managing director Keith McLaughlin said weekly credit applications had nearly halved in March, dropping 49 per cent.
Exact figures were commercially sensitive but his company had recorded "tens of thousands" fewer applications.
"Credit application inquiries fell consistently throughout the month, but there had been a sudden and dramatic drop in the last two weeks as the Government moved to tighten restrictions in response to the growing threat of Covid-19," McLaughlin said.
"Our data is clearly telling us that Kiwis are becoming increasingly concerned about the economic impact of Covid-19, and they are reacting by tightening their belts."
There are fears thousands of Kiwis could lose their jobs as the economy shrinks and firms lay off staff.
Centrix had seen significant drops in the number of credit application inquiries for credit cards, and credit inquiries relating to auto and personal loans.
"While mortgage credit inquiries had remained stable throughout most of March, they are now also starting to fall."
McLaughlin said the data painted an interesting picture of the current economic environment, but it wasn't overly surprising given the turbulent economic times.
"The drop in demand for credit is an indicator of an economic slowdown. It is natural to see credit demand fall given concerns consumers will have around job security and their ability to pay bills in the face of the widespread economic disruption being caused by Covid-19."
Despite the fall in overall demand for consumer credit, the data showed an increase in credit applications by those with very low credit ratings.
This likely represented people who were living "hand to mouth" topping up credit cards or personal loans to put a buffer in place during the lockdown, McLaughlin said.
"When things get a little bit tight people who don't have resources available have gone out to get the resources.
"Centrix uses a wide range of data to calculate a credit score for an applicant, with scores ranging between zero and 1000. The higher the score, the better their credit history," McLaughlin said.
"Those with higher credit ratings have largely disappeared from the market, but there has been an increase in credit applications by those with a score of below 400, with a 27 per cent increase in applicants with a credit score of below 300 over the month."
A score below 400 is a strong indicator of a higher credit risk and means the person is very likely to have an ongoing history of missing repayments.
A person's credit score was an important factor in whether companies would be willing to lend them money," McLaughlin said.
"It's important that if you are struggling to pay your bills, you talk to your creditors early and agree to alternative arrangements. This helps avoid credit score downgrades and can help protect you for future credit."