Rising National Credit Scores are Hope for Individual Reports

As election preparation gets underway, there will be a lot of talk about the economy and the financial health of the nation. There will be finger-pointing in areas that still seem to be struggling, while other groups may overreach in their self-congratulations for changing the financial shape of the country. As the nation’s financial health has a significant impact on the credit health of an individual. Looking at the recent U.S. credit health data, the last few years have shown a lot of promise with regard to a more secure financial future for both the country and it’s citizens.

Increased Average Scores

For the past ten years, the average FICO credit score of citizens in the U.S. was at a low of about 686. The Great Recession that up to the year 2009 was to blame, but since then, credit health has regained some footing in a more positive direction. A FICO score is the number between 300 to 850 that signal a person’s financial stability, and in the last years, the average numbers have been steadily climbing.  As of 2019, the average score had risen to a record high in the U.S. of 704. According to the team at FICO, there are fewer Americans who make up the lowest demographic bracket of low scores, but there are also fewer accounts that are ending up in collections and dragging the average down with them. There are a few other reasons that could potentially explain why the national average is so much higher this year.

Explaining Score and Spending Trends

The lowest scores are considered reports that are 550 or lower. There are fewer Americans in this bottom tier, which helps increase the average score. However, there are also more people that have achieved a coveted 800 or plus credit range. According to FICO, approximately 21.8% of consumers have a credit score that falls between 800-850, which is up 20.7% from the year prior.  The state of credit reports, as a whole, are also looking cleaner. The number of American who have one or more accounts in a collection status have fallen just over 2% in the last year. In April of 2018, the average was 25.58% of Americans, while that number has fallen to 23% this year.

Payment history plays a strong role in factoring a credit score, so the fact that there are fewer collection accounts being reported might be the reason for the increase in the national average. Three major credit reporting bureaus have also changed the methods of scoring, which could help the credit health for the consumers who currently have lower scores. There have also been fewer credit accounts open as a whole last year, with the overall percentage of the population hitting a four-year low of 42.2% for hard inquiries. The fact that there was less of an interest in credit inquiries could be a signal of a stronger economy where more individuals are able to live off their paycheck, either due to the reduced cost of living that many areas around the country have reported or the increase in wages. As a credit inquiry does impact a credit score, it could be that having fewer credit checks around the country has helped improve the national average for scores.

The Importance of the Uptick

Higher than average credit scores may mean that the citizens of the country are learning how to use their credit wisely and are more aware of how the credit system works. It could also indicate that lenders, who are still reeling from the effects of the Great Recession, are more cautious in their lending practices. The current state of the economy shows that household wealth is continuing to climb and joblessness is at a 50 year low. Combining these different elements can be a strong signal that the national economy is starting to bounce back from the recession. As lenders and borrowers continue to make more thoughtful credit decisions, the resulting effect should be more financial freedom and stability across the country. However, there is still some work to be done.

Personal Credit Dilemmas

The data at FICO is also showing that delinquencies are on the rise. This condition is when payments on an account are 90 plus days late. Although it is just half of a percent, this could also be blamed on the increased national average. Some lenders may have more confidence in the credit system and corresponding economic improvement, and as a result, have loosened some of the lending criteria. This could have extended credit opportunities to a near-prime population that has a greater likelihood of having to default. The small percentage of increase isn’t worrying lenders just yet, but there is caution that this could be a trend that can spiral out of control. However, what the rest of the country might be doing shouldn’t affect your own personal credit decisions.

Why Your Personal Scores Matter

In spite of the trends across America, you might not have seen your scores rise. While they can rise over time, taking a poor credit score up to a better category doesn’t really happen on its own. There are ways you can build your credit, and you will need to make sure you keep it at a healthy level. Unless you plan on paying cash for everything or living off the grid and off the land, just about everything that deals with buying and selling has a lot to do with credit. Utility providers and cell phone carriers check your credit to determine potential deposits and an assumption of risk, just as insurance companies also rely on credit scores for an understanding of the risk they are making with your account. Buying homes, automobiles, and even starting your own business can have everything to do with a personal credit score.

If your score isn’t close to the national average, you can take some simple steps to start repairing it. You can start by limiting your expenditure and refusing to open new lines of credit. You need to pay your bills on time each month. If possible, you should pay your entire monthly balance in full each month as well. Learn how to live on a budget and start a savings account to turn to rather than a credit line for emergencies. Your credit health is important, and you can start to work on making it stronger one dollar at a time.

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