FICO Credit Scores Hits All-Time High – What It Means to Consumers

Last Updated: October 20, 2018By Categories: Business, Finance0 Comments5.1 min read
fico credit scores

FICO, which is short for the Fair Isaac Corporation, announced that the average credit score among consumers in the US reached a historic high of 704. The new milestone is four points above than the average score of 700 in April of 2017.

Fico Credit Scores

According to financial experts, a score of 700 and above qualifies individually for most credit cards, as well as providing the ability to acquire good rates on home loans and other debts. There are many factors that contributed to the improved average score.

Factors Contributing to High FICO Scores

FICO scores range between 300 and 850. This is the first time the score reached 704, a decade after bottoming at 686 during the housing crisis. Here are factors why consumers have high credit scores:

1.  Easy Access to Scores

FICO vice president for scores and predictive analytics Ethan Dornhelm said the improved credit rating was due to growing awareness and understanding regarding credit. A study conducted by Sallie Mae, the Student Loan Marketing Association, and FICO showed that people who check their scores more often get better scores and make smarter financial decisions.

Consumers have better access to their score through websites such as Credit Sesame and Credit Karma. By knowing their rating, consumers can take the right steps required to maintain it.

2.  Stricter Underwriting Standards

Another factor that contributed to better credit scores is the stricter underwriting standards implemented by lenders after the Great Recession. Banks and other financial institutions made it harder for consumers to get approvals for home loans and other debts.

Lenders are now more cautious in their underwriting. They make sure that they give loans to people who can pay them back. There have been fewer consumers with debt going to collections in recent years.

3.  New Public Records Standards

The three major reporting agencies implemented a policy in July 2017 that removes civil judgments in credit reports. After the policy began, scores improved by an average of 10 percent.

Aside from civil judgments, the reporting agencies also removed tax liens from their reports. A tax lien is placed on the property when the individual fails to pay taxes on their home, car, or business.

Tax liens damage consumers’ scores, just like collections, repossessions, charge-offs, and bankruptcies do. The Consumer Financial Protection Bureau found significant inaccuracies on how lenders and debt agencies reported tax liens to bureaus, and as a result, many consumers don’t know there’s an error in their credit record unless they check it for errors.
The change in the policy contributed to the improvement of the overall consumers rating, leading to FICO’s all-time high.

4.  More Responsible Credit Card Use

Consumers are more responsible with their credit card use today than in previous years. They know when and how to use plastics to improve their credit history. By using credit cards properly, consumers avoid getting into the debt trap. They also improve their credit rating through timely payments.

By paying the entire balance in full each month within the grace period, you avoid paying interest. You build credit with every on-time payment. Not using the card, though, will result in zero payments on the record.

5.  What High FICO Score Means to Consumers

The US economy is enjoying a good year. Aside from the all-time FICO score, jobless claims are nearly at a 50-year low, and household wealth has an upward trend. These are indicators the economy is steadily improving after the Great Recession.

The credit score is one factor lenders use to assess the borrower’s ability to repay the nation 21 loans. With high scores, an individual will get the approval and qualify for better terms and rates. Having a good score means you are paying less interest than someone with a bad rating.

While not all employers check the credit rating of their potential employees, a person looking for a job will have a better chance of getting it with a good score especially if the position requires the handling of the company’s finances. If a person can’t handle his or her own finances, then they can’t manage the money of other people.

Aside from cheaper loans, a good score also means lower insurance rates. Car insurers look at the credit history of potential clients to determine the odds that the person will file a claim. A bad credit score might make the insurer charge higher premiums, even if the person was never involved in an accident.

A poor rating can also disqualify a person from rental opportunities. Property owners might see a bad rating as indicating someone who can’t pay the rent. Credit problems might also prevent an individual from getting utilities in one’s home.

That’s why consumers should maintain good FICO scores. A good rating is between 700 and 749. If you want access to the lowest interests and best terms for loans, you should try to achieve an excellent rating, which is 750 and above.

6.  Achieving High FICO Score

With the average FICO score at a historical high, now is the best time to improve your own. There are many ways of improving one’s rating.

One way is to pay down student loans. Most adults today have a significant amount of student debt. If you want to improve your rating, then consider paying it off. Try refinancing student loans to get better rates and make them more affordable. In addition to your student loans, you should also consider paying down other debts. Use debt consolidation to merge other debts into one account. Just make sure the new loan has a lower interest rate.

Another way to tackle debt is through a balance transfer via a credit card with zero percent APR for a short period. Just make sure to repay the debt within the promo period.

It is also important to monitor your rating regularly, which helps you spot mistakes as soon as possible. Monitoring your scores can help you make better financial decisions in the future.

Now is the perfect time to improve your FICO score. Be inspired by the all-time average score and start working on raising your own rating today!

Featured Image Source: Flickr

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