‘A notable milestone’: The average US credit score falls for the first time in a decade as ‘financial strain’ takes a toll on consumers. Here are 4 ways to ease the pain
The credit score — that three-digit number lenders use to determine how responsible you are with money — is taking a hit across America, as consumers continue to grapple with higher prices and interest rates.
FICO, a major data analytics and credit scoring company, recently released a report on its latest credit score data from October 2023. The national average FICO score slipped to 717, down from 718 in July — marking the first time credit scores have dropped in a decade.
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“It’s a notable milestone that we’ve seen the average score decrease,” said Ethan Dornhelm, vice president of scores and predictive analytics at FICO, to Bloomberg.
“This isn’t a blinking red light, but it certainly is a yellow light.”
What’s triggering the decline?
The FICO report says increases in missed borrower payments and consumer debt levels are causing credit scores to slide. Your credit score is usually determined by factors like if you’re making credit card payments on time or keeping your credit utilization ratio low.
As of October 2023, the data shows over 18% of the population were late on payments on one or more credit accounts for 30 days or more in the last year, up 4% compared to April.
Consumer debt is also higher that it was prior to the COVID-19 pandemic, with credit card balances topping the $1 trillion mark as more folks rely on their cards to make ends meet.
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“The apparent cumulative impact of higher interest rates, elevated consumer prices and economic uncertainty has put a financial strain especially on those consumers who heavily rely on credit cards to cover everyday expenses,” said Can Arkali, FICO’s senior director of scores and predictive analytics.
Meanwhile, new credit activity — which can often offset some of the effects of increased debt and delinquencies — is slowing down as well. Arkali suggests this could be due to the plunge in mortgage origination volume during that period, as prices and mortgage rates remained high, keeping consumers on the sidelines.
Still, experts say there’s no need to sound the alarm over a one-point drop in credit scores.
Gus Faucher, PNC’s chief economist, told CNN it’s “not terribly concerning” that FICO scores have dipped, considering how they reached record highs in 2022 when there was strong job growth and consumers were flush with cash.
“The overall outlook for consumer credit quality, and consumer spending growth is still very solid,” Faucher adds.
4 ways to ease the pain
For folks struggling to manage the cost-of-living crisis and make payments on their credit cards, there are a few ways they can lessen the financial strain.
Try negotiating a lower interest rate on your credit card by calling up your issuer. You’re more likely to secure a lower rate if you have a history of on-time payments and a strong credit score to back you — but it can also be helpful to mention this will help you pay off your credit card debt.
If you have multiple credit cards or loans that are becoming tricky to keep track of, you could also consider rolling them into a debt consolidation loan with a lower interest rate. You can also consider moving your credit card debt onto a 0% introductory APR credit card, but make sure you understand the risks.
Reducing your credit utilization rate can be tough in the face of higher prices — but creating and sticking to a solid budget can help you manage your costs. Create a spreadsheet of your income and expenses, so you can keep a record of where your money’s going.
And look for easy ways to boost your income — like renting out a spare room in your home, or putting your spare change from your everyday purchases into a smart investment portfolio.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
