Why U.S. Credit Scores Are Dropping For The First Time in a Decade

The national average credit score has dropped for the first time since 2013 – and while it may not be a cause for national concern yet, it is an indication of growing financial stress for the average American.

Average Credit Score Drops

Image Credit: Shutterstock / Casper1774 Studio

For the first time in ten years, the national average FICO credit score in the U.S. has dropped, giving insight into how higher interest rates and prices are straining consumer finances.

718 to 717

Image Credit: Shutterstock / Jirapong Manustrong

The national average credit score has been 717 since October, down 1 point from the 718 average in July.

First in a Decade

Image Credit: Shutterstock / simona pilolla 2

The last time credit scores dropped was over ten years ago during the last U.S. housing crisis, when average credit scores across the country fell as low as 686 due to mass foreclosures in 2013. 

Covid Stimulus

Image Credit: Shutterstock / Evgenia Parajanian

Average credit scores have continued to climb since then and even remained stable throughout the COVID-19 pandemic when the government was injecting stimulus money into the economy to keep households afloat. 

Forbearance Support

Image Credit: Shutterstock / Africa Studio

Postponements on debt repayments from banks and credit card companies during this period also made a significant difference.

However, in the last two years, a changing economy has meant that millions of people have used up these COVID cash reserves.

Removed From the Pandemic

conference, speaker, microphone, speak, seminar, public, business, speech, news, podium, lecture, audience, talk, room, professional, stage, media, convention, auditorium, voice, closeup, light, audio, information, ceremony, assembly, blue, report, club, equipment, background, show, chair, empty, communication, party, place, message, meeting, performance, horizontal, seat, rostrum, announcement, indoors, loud, nobody, sound
Image Credit: Shutterstock / ESB Professional

“We are pretty far removed from pandemic-level mitigation programs, so consumers are very much confronted with making good on their credit obligations,” said Ethan Dornhelm, FICO vice president of scores and predictive analytics.

“With little in the way of stimulus checks or government-defined accommodation programs.” 

Increased Financial Stress

Image Credit: Shutterstock / Cast Of Thousands

While this drop is much less severe, it does indicate some concerning economic truths for the average American – namely, that financial stress is increasing for millions of people around the country.

Higher Interest Rates Add Pressure

Image Credit: Shutterstock / Romix Image

As the Federal Reserve raises interest rates to fight inflation and the cost of living crisis continues, consumers are feeling the strain on their pockets and savings accounts. 

Where We See It

Image Credit: Shutterstock / Cast Of Thousands

This is showing up in national credit score averages due to increased reliance on credit cards, an uptick in missed payments, and more outstanding debt.

Missed Payments, More Debt

Image Credit: Shutterstock / Andrey_Popov

According to FICO data, more people are missing payments on their credit reports and using higher amounts of credit to pay the bills and sustain their lifestyles during economic uncertainty. 

Increased Late Repayments

data, business, analysis, invest, financial, computer, media, office, laptop, trade, monitor, internet, corporate, finance, chart, bank, strategy, risk, lawyer, report, review, graph, document, result, loan, progress, client, contract, spreadsheet, rate, modern, start, resources, payment, up, hipster, prevent, teamwork, marketing, brainstorming, economics, statistics, development, discussion, briefing, colleagues, consulting, planning
Image Credit: Shutterstock / statistic data

Data shows that as of October 2023, more than 18% of consumers had made late payments of 30 days or more on at least one credit account in the previous year. 

Higher Than Pre-Pandemic Levels

Image Credit: Shutterstock / Sirikan Aka

This number is 4% higher than it was in April 2023 and is higher than it was before the pandemic.

Credit Utilization Ratio Rises

Image Credit: Shutterstock / Cast Of Thousands

The same data also shows that the average American credit utilization ratio, which is the percentage of your available credit that you actively use, is now at 35%.

This means the average consumer is using 35% of the credit available to them.

Keep It 30% or Lower

Image Credit: Shutterstock / garagestock

This is an issue as financial and credit experts typically recommend keeping your utilization rate at 30% or lower to keep it from negatively affecting your credit score.

“Starting to Weigh on Customers”

Image Credit: Shutterstock / fizkes

In the most recent FICO report on average credit scores, the company’s director of scores and predictive analytics, Can Arkali, wrote, “The effects of high interest rates and persistent inflation may be starting to weigh on consumers, especially those already struggling to manage their finances.”

Keep An Eye on the Numbers

Image Credit: Shutterstock / Andrey_Popov

While Arkali and other experts have denied that these recent numbers are a bad omen for the U.S. economy, he does believe that the government and economists should keep a close eye on these numbers in the coming year.

Shouldn’t Raise Alarms

Image Credit: Shutterstock / wellphoto

“While this is a notable milestone, it’s not a drastic decrease and not one that should sound an alarm,” he explained.

Record-High Credit Card Debt

Image Credit: Shutterstock / Andriy Blokhin

The New York Federal Reserve has reported record-high credit card debt, which stood at $1.1 trillion as of December. 

A Concern for the Average American

Image Credit: Shutterstock / Prostock-studio

Increased credit card debt and lower credit scores may not be an immediate red flag for the economy overall, but it is a concerning reality for average Americans who rely on a ‘good’ credit card score to qualify for various financial products and even housing.

“Difficult in the Current Economy”

Image Credit: Shutterstock / Andrey_Popov

“The lower the credit score the less likely you could get approved for financing and the higher your interest rate is going to be,” says Anna Kaplan, founder of lending and financing software iFinance. 

“It’s difficult in this current economy not to have a good credit score.”

23 Steep Taxes Adding to California Residents’ Burden

Image Credit: Shutterstock / Alex Millauer

California: a place of sunshine, innovation, and, unfortunately, some of the nation’s highest taxes. From LA’s beaches to Silicon Valley’s tech hubs, residents grapple with a maze of state taxes. Here’s a glance at 23 taxes that might surprise both Californians and outsiders. 23 Steep Taxes Adding to California Residents’ Burden

Cash in on Nostalgia: 21 Toys Now Worth a Fortune

Image Credit: Shutterstock / Kostikova Natalia

Time to dust off the boxes and find that once-cherished toy from your childhood. For collectors and enthusiasts, they items have become valued objects and they can be worth big bucks – are there any of these in your attic? Cash in on Nostalgia: 21 Toys Now Worth a Fortune

Millennials Don’t Buy These 19 Products Anymore

Image Credit: Shutterstock / mariakray

Millennials are changing consumer habits, quietly replacing once-staple products and traditions. Often criticized for their disruptive preferences, this generation is reshaping the marketplace with digital expertise, ethical buying, and a taste for the unconventional. Millennials Don’t Buy These 19 Products Anymore

10 Reasons Firearms Are Essential to America’s Fabric

Image Credit: Shutterstock / rblfmr

Americans’ strong attachment to guns is influenced by constitutional rights, historical context, and cultural traditions. This article explores the cultural perspective driving their unwavering support for gun ownership, revealing the key factors shaping this enduring aspect of American life. 10 Reasons Firearms Are Essential to America’s Fabric

California’s 16 New Laws Raise Red Flags for Prospective Residents

Image Credit: Shutterstock / PeopleImages.com – Yuri A

California, celebrated for its beaches, tech prowess, and diversity, is now gaining attention for its recent legislation, prompting some residents to reconsider their residency. Explore the new laws of 2024 and the controversies and migration they’re stirring. California’s 16 New Laws Raise Red Flags for Prospective Residents

The post Why U.S. Credit Scores Are Dropping For The First Time in a Decade first appeared on Thrift My Life.

Featured Image Credit: Shutterstock / Andrey_Popov.

The content of this article is for informational purposes only and does not constitute or replace professional financial advice.