Credit scores hit an all-time high despite rising debt

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Personal Finance Tips 2023: Improving your credit score

Credit scores rose as consumers took on more debt

As higher prices weighed on most Americans’ financial standing, consumers, as a whole, have fallen deeper in debt, causing an increase in credit card balances and an uptick in missed payments.

As of April, the average credit card utilization was 34%, up from 31% a year earlier.

Your utilization rate, the ratio of debt to total credit, is one of the factors that can influence your score. Credit experts generally advise borrowers to keep revolving debt below 30% of their available credit to limit the effect that high balances can have.

Still, delinquency rates are low by historical standards, said Ted Rossman, senior industry analyst at Bankrate. “People are working and keeping up with their bills.

“Even if they are not saving more, they are keeping up, for the most part.”

A strong labor market and cooling inflation have helped offset high interest rates and consumer prices, FICO found, and so has the removal of certain medical collections data from consumer credit files.

However, “FICO scores are a lagging, not a leading, indicator,” Dornhelm said. The possibility of a recession coupled with rising unemployment could weigh on scores going forward, he added.

Experts also expect the resumption of student loan payments to take a bite out of household budgets, while elevated gas prices and geopolitical tensions are hitting confidence levels.  

What is a ‘good’ credit score?

Generally speaking, the higher your credit score, the better off you are when it comes to getting a loan. You’re more likely to be approved, and if you’re approved, you can qualify for a lower interest rate.

A good score generally is above 670, a very good score is over 740 and anything above 800 is considered exceptional.

An average score of 718 by FICO measurements means most lenders will consider your creditworthiness “good” and are more likely to extend lower rates.

Average nationwide credit scores bottomed out at 686 during the housing crisis more than a decade ago, when there was a sharp increase in foreclosures. They steadily ticked higher until the Covid-19 pandemic, when government stimulus programs and a spike in household saving helped scores jump to a historical high.

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