U.S. Consumer Credit Health: A Closer Look at Recent Trends

The national average credit score reached a new peak in April 2023 at 718, marking a 2-point climb from last October, as reported by FICO. This recent elevation marks the most significant average recorded by the renowned financial data firm, FICO, which calculates individuals’ credit scores using data from the three major credit bureaus.

Factors Influencing Creditworthiness

  • The consistent upward trajectory of the average U.S. credit score over the past decade signals a reflection of the nation’s credit health.
  • FICO’s senior director of analytics, Can Arkali, mentions that the national average serves as a pivotal indicator of the country’s financial health and ability to handle debt.
  • Arkali and other experts attribute this increase to various factors:
  1. A robust job market that continues to support workers.
  2. Slower inflation rates compared to the previous year.
  3. New credit bureau policies that have removed medical debts under $500 from individual credit reports.
  4. Despite the continued pressure of prolonged high inflation and the rise in interest rates for consumer loans, these positive factors have outweighed the negatives, at least for a significant portion of consumers.

Challenges Amidst the Progress

  • There are indications of mounting pressure on some household budgets. Notable data includes:
  1. A rise in the percentage of the population with a payment delayed by over 30 days in the last year, escalating to 17.3% in April 2023 from 15.2% in April 2022.
  2. A noticeable increase in average credit card balances, growing to $6,898 in April 2023 from $5,988 the year before.
  • Although government pandemic relief cash aids previously facilitated credit card debt reduction, these advantages have since waned as these programs concluded and the economy entirely reopened.

Credit Health Amid Rising Credit Card Usage

  • As of April 2023, U.S. consumers surpassed a combined credit card balance of $1 trillion for the first time. Nevertheless, this did not deter the average credit score’s progress.
  • A study shows a 3% surge in average credit card utilization from the prior year, standing at 34%.
  • Credit professionals typically recommend maintaining a debt below 30% of available credit to minimize the potential adverse effects on credit scores.

Analyst Insights

  • Ethan Dornhelm, FICO’s vice president of scores and predictive analytics, stresses the solid credit health of consumers despite rising debts.
  • Delinquency rates, though heightened, are still relatively low by historical standards, claims Ted Rossman of Bankrate.
  • Dornhelm points out a noteworthy aspect: FICO scores reflect past events more than they predict future ones. He suggests the possibility of scores experiencing a downturn if faced with economic challenges like recessions or increased unemployment.

Understanding the “Good” Credit Score

  •  FICO’s rating system classifies a score above 670 as ‘good’, above 740 as ‘very good’, and a score surpassing 800 as ‘exceptional’. –
  • With the current average of 718, lenders perceive the creditworthiness of most Americans favorably, making them eligible for competitive interest rates.
  • The average credit score had its lowest point over a decade ago during the housing crisis, with a value of 686. However, proactive government initiatives during the COVID-19 pandemic and increased household savings contributed to an unprecedented rise in credit scores.

The Balancing Act of Economic Dynamics

While the resilience displayed by consumers and the upward trend in credit scores is commendable, economic dynamics are inherently complex. Factors such as global economic shifts, national policies, and consumer behaviors play pivotal roles in shaping financial landscapes.

Global Economic Shifts

It is essential to remain cognizant of the ripple effects caused by major global events. Issues like trade wars, international conflicts, and unforeseen pandemics can quickly affect national economies. For instance, a significant disruption in trade between major nations can lead to increased prices for goods and services, which may strain the average consumer’s budget and subsequently impact credit scores.

National Policies and Their Impacts

The efficacy of national policies in managing economic challenges is paramount. The government’s response during the COVID-19 pandemic, offering financial relief and stimulus packages, serves as a testament to policy impact. Moving forward, strategies addressing unemployment, inflation control, and supporting small businesses will be critical in ensuring continued creditworthiness among consumers.

Looking Ahead

As global events continue to unfold, various challenges like the resumption of student loan payments, geopolitical tensions, and persistent high fuel costs could potentially impact the consumer’s financial confidence. Regardless of these challenges, the recent high in credit scores indicates a resilient economy and an adaptive consumer base. However, vigilance and preparedness are essential to navigate potential economic uncertainties in the future. Know more.


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