Hurray for us
Let’s pat ourselves on the back, America: our collective average credit score suggests we may be acting more responsibly with our money.
Your credit score is that magic number banks use to determine whether they will give you a loan and on what terms. According to FICO prophecy, the higher your score, the less likely you are to default on your debt (i.e., stiff your lender).
The United States’ average FICO credit score hit a record high in April, nearly a decade after it bottomed out in the aftermath of the 2008 financial crisis. America’s new high mark is 704. As far as FICO is concerned, the dark days were in October 2009, when our average score dropped to 686.
What sorcery is this?
Similar to Colonel Sanders’ seasoning recipe, FICO’s methods are a trade secret. The company does provide some general information, however, to aid consumers in optimizing their scores.
- 35 percent payment history (Did you pay your bill on time?)
- 30 percent amount owed (Maxing out your credit is bad.)
- 15 percent length of credit history (A long-time borrower is a better borrower.)
- 10 percent new credit (Maybe don’t open separate cards for every department store.)
- 10 percent types of credit (You can handle student, auto, and credit card debt? Nice!)
A FICO score lands between 300 and 850. If your score is below 650, you will probably be paying a high interest rate on your next loan and may even have trouble getting credit. The threshold for a good interest rate from the mortgage industry is 680.
Anything above 740 is considered excellent.And then there’s the not-so-great news
While our 704 is good news for U.S. consumers, FICO’s report on the higher score was not all cheaper credit and unicorns. The delinquency rate for bank cards is on the rise, bumping up from 7.1 percent in April 2016 to 8.2 percent in April 2018.
Additionally, Bloomberg relayed these bits of less-than-cheerful analysis:
- Americans are borrowing more than ever, and mortgage balances are growing in line with pre-housing bubble levels
- The ratio of personal savings to disposable personal income is falling
- Auto lending, feared to be the next subprime lending crisis, is climbing, and consumers are taking longer to repay their loans
- Total household debt hit a record $13 trillion in this year’s second quarter
Let’s celebrate our 704 while we can.
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