National Average FICO Credit Score Sees Unprecedented Decline For The First Time In A Decade

The national average FICO credit score has experienced its first decline in a decade, signaling potential economic challenges.

According to Money Talks News, the national average FICO credit score has experienced its first decline in a decade, signaling potential economic challenges. According to Fair Isaac Corp., or FICO, the average credit score dipped to 717 out of 850 in October 2023, down by one point from the previous year. This departure from the usual upward trend, last observed in 2013, has caught the attention of financial analysts.

FICO emphasizes the dynamic nature of credit scores, attributing this decline to the combined impacts of inflation and higher interest rates affecting consumers adversely. The manifestation of missed borrower payments and escalated consumer debt levels appears to be contributing significantly to this shift.

Statistics from October 2023 reveal a concerning trend, with approximately 18% of the population experiencing a 30-day or worse past-due payment on at least one credit account in the preceding year. This marks a sharp increase from the 4% recorded in April 2023. Higher consumer debt is evident in the rise of average credit utilization, which reached 35% in October 2023, compared to 34% in October 2019, just before the onset of the COVID-19 pandemic.

Alarmingly, credit card balances in the United States surpassed $1 trillion as of October, averaging about $3,100 per person. The implications of this credit score decline on consumers, particularly in the midst of economic uncertainties, are profound. Analysts suggest that the shift may prompt lenders to reassess risk, potentially leading to changes in interest rates and loan approvals.

To address the implications for individual credit scores, experts recommend proactive measures. Understanding how credit scores are calculated is crucial, with payment history and amounts owed being predominant factors. Payment history, constituting 35% of FICO scores, underscores the importance of timely payments for credit cards, installment loans, and mortgages. Even a single late payment can have adverse effects, making a consistent track record of timely payments imperative.

“Amounts owed,” encompassing outstanding balances on installment loans and revolving accounts like credit cards, holds significant weight in credit scores. The credit utilization ratio, indicating the proportion of available credit in use, is a crucial metric. Experts advise against closing unused credit card accounts, as it reduces available credit, thereby increasing the credit utilization ratio and potentially harming credit scores.

As the nation grapples with this unexpected downturn in average credit scores, individuals are encouraged to assess their own credit standing, understand the factors influencing their scores, and take proactive steps to maintain or improve their creditworthiness.