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Natural disasters can hurt people’s credit scores for years afterward

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Long after the debris has been cleared, natural disasters have a lasting effect on those who are left to pick up the pieces.

It can take years for people’s finances to recover, according to a new report from the Urban Institute, a Washington, D.C. think tank.

The report examined credit-bureau data for communities that were hit by a natural disaster from 2011 through the summer of 2014.

The Urban Institute identified these communities by looking for ZIP codes where at least one household had applied for assistance through the Federal Emergency Management Agency’s Individuals and Households Program.

“The combination of devastating natural disasters with financially fragile families can be a recipe for not only short-term financial hardship, but also long-term declines in financial health,” the report’s authors wrote.

“The overall pattern of results also broadly suggests that disasters do more than harm residents; they also widen existing inequalities,” it added.

Read more: Home prices are plummeting in Puerto Rico—what buyers need to know

Here is what the report found:

Disasters have a negative effect on most aspects of people’s financial lives

The negative impacts of natural disasters run the gamut from poor credit scores and debt collections to home foreclosures.

In many cases, these effects increase in magnitude over time following the initial disaster. After Superstorm Sandy, there was an initial 7-point drop in credit scores on average in the year after the storm battered the Northeast. But two years later, credit scores had dropped by an average of 10 points from levels before the hurricane.

The same was true for the share of people who had debt in collections. This segment of the population in areas affected by natural disasters was 5 percentage points larger in the first year following, three years later it was 10 percentage points higher.

Four years after Hurricane Sandy, the average credit score in affected communities had dropped by 10 points.

The disasters themselves don’t directly cause people’s credit profile to worsen or their debt to go unpaid. Rather, these events complicate their lives. A destroyed workplace can disrupt someone’s employment and reduce their wages. Damage to one’s home or belongings creates added costs. As those factors combine, consumers can find it much harder to pay off bills and debt.

Consequently, the financial impact of a natural disaster can get worse over time. Having debt in collections or going into foreclosure will damage a person’s credit score. Having a bad credit score can then make it harder for them to get a new or higher-paying job or to take out a loan to help pay for the recovery.

These people may then need to turn to alternative methods for making ends meet, such as payday loans, which can be costly and further exacerbate their ability to bounce back.

Also see: This unexpected sector of the stock market is the most hurt by hurricane season

Medium-sized disasters may be worse for people’s finances than major ones

Researchers found that across most measures of financial health, people were worse off in the wake of smaller disasters than they were in the wake of Superstorm Sandy, which caused over $70 billion in damage and ranks as the third costliest storm to ever hit the U.S.

“Residents hit by medium-sized disasters may experience greater financial struggles because these disasters do not receive the influx of federal support that large disasters receive,” the authors wrote.

Congress is less likely to appropriate special funds for assistance to these communities than they are for those hit by larger, more destructive events. That’s in spite of the fact that medium-sized disasters on an individual level can be just as troubling as a huge storm or other disaster.

The report’s authors added that more research into this issue was needed, as their analysis of the differing financial impact for medium-sized disasters largely focused on 2014 flooding in Michigan. Because that event hit urban areas with a different socioeconomic makeup than much of the country, other medium-sized disasters may not necessarily lead to the same financial devastation. They also suggested that lawmakers consider broadening the scope of disasters that qualify for additional government assistance.

Disasters can exacerbate existing inequality

While the financial effects of a natural disaster do cut across all income brackets, it’s the people who are already struggling before a catastrophe that suffer the worst financial effects because of it.

For instance, people who had poor credit before a disaster will experience more significant declines as a result. The average credit score among those with initially poor credit dropped by 29 points four years after a medium-sized disaster. Comparatively, the average score for people with initially good credit only declined by 8 points in that time.

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