After Jumping During Pandemic, Credit Scores Have Leveled Off

Sep 7, 2022Financial Literacy, News

FICO credit scores have stabilized this year after significantly increasing at the start of the COVID-19 pandemic, breaking an almost decade-long streak of upward movement as consumer debt and missed payments have risen. In April of this year, the average American’s credit score was 716, the same score recorded in April 2021 and October 2021.

“We are leveling off back to pre-pandemic norms which is, in and of itself, not a red flag,” said FICO’s Vice President Ethan Dornhelm, despite “this slight deterioration of debt levels. What we’re keeping an eye on is if there’s continued deterioration.”

CNBC noted that as inflation remains a stumbling block for many Americans, more consumers have relied on credit card balances, causing the rise in missed payments. In April, the average credit card utilization—the ratio of debt to total credit—was around 31 percent, up from 29.6 percent the year prior. Credit experts advise borrowers to keep revolving debt under 30 percent of their credit limit.

As most stimulus programs have ended, missed payments in credit files are up nearly 1 percent year-over-year. As of April, about 15 percent of Americans had a late payment of at least 30 days in the past year, which impacts credit scores as 35 percent of a FICO score is based on payment history.

Dornhelm added that the suppressed credit scores are also reflective of consumers’ shifting spending habits, as at the beginning of the pandemic, more Americans worked from home and had less to spend money on. Fortune noted that government stimulus helped Americans gain financial stability.

“All of those things enabled consumers to save like never before, pay down debt like never before, and get caught up to the extent they were behind on their payments,” said Dornhelm. “All of those things facilitated this incredible—and really unprecedented—increase in the FICO score in the first year of the pandemic.”

However, the upward trends have not been prevalent in some minority groups. From 2010 to 2021, 33 percent of 18- to 29-year-olds in majority Black communities and 26 percent in majority-Hispanic communities saw decreasing credit scores, compared to 21 percent in mostly white communities.

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