Credit ratings jumped in the first year of the pandemic. Today, in an environment of high inflation and rising consumer debt, they are holding their own – and that is not necessarily a good thing.
According to a new report from FICO, the analytics company that developed one of the go-to credit scores for lenders.
“This stabilization in the score is significant, as 2022 marks the first time in more than a decade that the average FICO score has not increased year over year,” said Can Arkali, senior director of scores and predictive analytics at FICO.
FICO scores range from 300 (poor) to 850 (excellent). Credit scores are used by lenders to determine how risky (or not) you will be as a borrower; they impact the terms of credit cards, personal loans and mortgages.
“It appears that the economy and a return to pre-pandemic consumer habits have helped dampen any further upward movement in the current year,” says Bruce McClary, senior vice president of communications at the National Foundation for Credit Counseling. “The latest FICO data shows an annual increase in credit card balances and missed payments, indicating that more Americans are struggling to manage the debt they owe and need help.”
In 2020, the average FICO score jumped five points, from 708 to 713. This increase is due to the rapid recovery of the economy since the early days of the COVID-19 lockdown, government stimulus programs and historical levels of household savings in addition to payment from lenders. hosting programs, Arkali wrote in the FICO report.
Today, growth has leveled off as Americans grapple with soaring prices for everything from gas to groceries, taking out credit cards and depleting their savings.
About 20% of the “FICO-scorable” population saw their score decrease by at least 20 points between April 2021 and April 2022.
“For many of these consumers, this decline was likely driven by the reverse of the trends that drove the national average FICO score up in the first year of the pandemic: slowing economic growth, surging inflation, a decline in household savings rates and the reduction of government stimulus programs,” Arkali added.
Why Credit Scores Don’t Improve
The average credit score remained stable in part due to an increase in missed payments. In April, just over 15% of the population had paid a bill overdue for more than 30 days in the past year, an increase of just over 1% from the previous year.
Then there is the rising level of consumer debt. Average credit card usage was 31% in April (down from 30% in April 2021 but down from 33% in April 2020), according to the report.
And finally, more and more consumers are getting credit cards, bringing new credit activity back to pre-pandemic levels.
To find out your credit score for free, you can use a service like Credit Karma or Credit Sesame. If you’re not happy with what you see and want to improve your own credit score, experts recommend paying your bills on time, monitoring your credit utilization rate, and checking your credit report regularly. free online to check for errors and/or fraud.
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