Average U.S. credit score hit an all-time high

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The average FICO® credit score in the U.S. hit a record high of 704 in April, according to a report published Monday.

This comes nearly a decade after the average FICO® credit score in the U.S. bottomed out at 686 in October 2009 closely following the Great Recession. Since the dip in 2009, Americans have steadily regained credit health, with the average FICO® credit score — which typically ranges from 300 to 850 — consistently climbing over the last eight years.

The reason, according to FICO: Fewer Americans have credit scores in the lowest bracket and fewer accounts have ended up in collections, perhaps signaling an economy that’s picking itself back up after the recession.

But the report also highlights a few troubling trends that borrowers and lenders should begin to monitor.

Want to learn more?

What’s the background?

There are a few reasons that could explain why credit scores have hit a record high this year.

First, there are fewer Americans with scores in the lowest score range (550 or lower). With fewer scores at the bottom of the scale, the overall average credit score has risen. Additionally, more people have reached the coveted 800-plus range, according to FICO, with 21.8% of consumers included in the 800 to 850 band, up from 20.7% last year.

Second, U.S. credit reports are looking cleaner on the whole. According to the FICO® report, the percentage of Americans with one or more collections accounts on their file has fallen to 23% in April 2018 from 25.8% at the same time last year.

Payment history makes up a large portion of what determines your scores, so this drop in reported collections accounts could account for the upswing. What’s more, scoring changes made by the three major credit reporting agencies through the National Consumer Assistance Plan may have helped improve the credit health of consumers with lower scores.

Learn more: Why millions of Americans may have seen a credit boost because of the National Consumer Assistance Plan

Last, Americans are applying for fewer credit lines overall. According to the FICO® report, the percentage of the population with one or more hard inquiries hit a four-year low of 42.2% in April compared with 43.7% in April 2014. While a hard inquiry doesn’t affect your scores as much as your payment history, fewer of these credit checks could account for some of the uptick in the national average score.

Why does this matter?

With U.S. jobless claims at a near 50-year low and household wealth continuing to rise, a record-setting national average credit score might further signal an economy that’s getting back up on its feet after the recession.

Higher average credit scores could mean people are seeking to understand the credit system more fully and using their credit more wisely. It could also mean that lenders, in the wake of the Great Recession, are more cautious about who they lend to and are therefore choosing borrowers who are more likely to make consistent payments. Either way, a high average credit score is one sign that American borrowers and lenders are being more thoughtful.

But it’s not all good news: The FICO® report also reveals that delinquencies — that is, payments that are 90 or more days late on a bank card — are also on the rise (at 8.2% in April 2018, up from 7.7% at the same time last year).

This increase in delinquencies could be happening as a result of the overall credit score uptick.

Ethan Dornhelm, vice president of scores and analytics at FICO, said in an interview with Bloomberg that it could be a “reflection that lenders started loosening underwriting criteria a bit, so [they] are bringing in a near-prime population that is more likely to default.”

It’s not reason for major concern now, but consumers and lenders should continue to keep an eye on the trend.

What can you do?

Whether through your own efforts or because of National Consumer Assistance Plan-related efforts by the major credit bureaus, we hope you’ve seen a boost in your credit scores.

If your scores haven’t gone up (or you don’t have credit scores), there’s no need to worry. There are ways you can work to build your credit, such as applying for a secured credit card and making sure you pay your balances on time and in full each month.

If you find yourself 90 or more days late on a credit card payment, understand your options and work to make those payments as soon as you can.

More broadly, it’s important to keep an eye on the economy. Even though we’re seeing many positive developments almost a decade after the recession, there are some troubling indicators cropping up — including record-high household debt, the increasing length of time it’s taking consumers to pay off certain debt (like auto loans), and a declining ratio of personal savings to disposable personal income. These economic factors could lead to credit score changes and other issues down the line.