Lesson learned? Whether they saw their credit decimated by the
housing crisis and the Great Recession or merely watched loan standards
tightened beyond their ability to qualify, Americans seem to have taken to
heart the importance of their credit scores. The result, FICO says, is that consumer credit
scores have reached a new high, an average of 704 points.
Kenneth Harney, in an article for the
Washington Post's Writers' Group, quotes FICO Vice President of Scores and
Analytics Ethan Dornhelm that Americans are "making more judicious use of
credit." This means higher scores on the FICO model that weights them not only
in terms of on-time payments but on the length of the credit history, the
amount and type of credit a consumer has available, and how much of that available
credit is being used.
The 704 point average score, on scale that
runs from 300 to 850, is a substantial improvement from the average of 686 in 2009. Harney points out that a lot of the improvement,
5 points, has been added in the last two years, one of the fastest two-year
runups in FICO history.
A score of 704 is considered good, meaning
a consumer is a fairly safe bet for performing on a loan as agreed, and usually
gets that borrower a fairly good interest rates and other terms. The best deals are usually reserved for those
with scores of 750 or better. However, while FICO scores for most categories of
borrowers are rising, Harney points out that the averages for people taking out
mortgages are sliding, down from 745 in the years after the crash to about
733. This, of course, is not a
reflection on borrowers but rather an indication that mortgage lenders are
relaxing their standards, accepting slightly lower scores in their
underwriting.
There are variations in average scores by
age. Persons 18 to 29, a range that includes some Millennials and most adults
of Generation Z, have an average score of 659. They will typically have not only credit
histories but thinner credit files, many any negative report will weigh more
heavily on the score. The average score for
people ages 40 to 49 is 690, and for those 60 and older, it's 747.
There are a lot of factors that help account for the overall
higher scores. First, fewer people have
truly awful ones. Those with scores under
500 now constitute 4.2 percent of the total, down from 7.3 percent in 2009 and
the share with scores from 500 to 549 has dropped from 8.7 percent to 6.8
percent.
On the other end of the spectrum, 22 percent of those with a FICO
number are considered "super-scorers," with a score over 800. Forty-two percent have scores between 750 and
850.
Some help may have come from a change in reporting by the three
major credit bureaus that we noted
a few weeks ago. So-called collection reports, defaulted accounts that are sold
to a third-party, have been handled differently since the first of this year. They must be associated with a contract or
agreement to pay and marked as paid when they are. Medical accounts have to be at least 180 days
past due before being reported and all collection accounts must have sufficient
information to link them to that consumer. The number of credit files with collection
accounts were reported by the Federal Reserve as dropping from 12 percent last
year to 9 percent at present.
Dornhelm
says that lessons from the housing crisis are clearly affecting scores and consumer
behavior. He thinks more Americans have
access to and better understand their credit scores and how to manage them,
including managing the amount of their debt.