American consumers are proving to have a greater understanding of their credit behaviors and scores.
Credit quality is steadily trending upward in the United States.
For the first time, the average national FICO credit score has reached an all-time high of 704, according to the credit score provider, which announced the news on Monday.
FICO experts attributed the change to consumers’ greater understanding of their credit behaviors and scores. They said the overall uptick in awareness has resulted in people checking their credit scores more often and finding ways to boost their scores.
Customers who regularly track their FICO credit scores were found to manage their money better and make more responsible financial decisions, according to research conducted by FICO and Sallie Mae.
The milestone clocks in four points higher than the previous record of 700 in July 2017. It marks eight consecutive years of steady increases in the national average FICO credit score, since bottoming out in October 2009 with an average of 686.
Why did the average FICO credit score improve?
FICO analyzed the year-over-year increase and determined the improved average was not specific to certain age groups. The average credit score grew by four to five points across all age groups; people age 60 and older led the way with an average FICO credit score of 747. The lowest average was among people age 18 to 29, with an average FICO credit score of 659.
Consumers were also found to be seeking credit in a more responsible manner. The percentage of people with at least one “hard” credit inquiry hit a four-year low of 42.2 percent, down from a high of 44 percent in 2015. FICO says having a greater number of inquiries can indicate risk, and is factored into the FICO credit score calculation.
(Remember: Checking your own credit report or credit score never negatively impacts your credit.)
Customers who regularly track their FICO credit scores were found to manage their money better and make better financial decisions.
FICO experts noted that fewer credit profiles have negative blemishes: 23 percent of consumers have at least one collection agency account on file, down from 25.8 percent in 2017. The 2.8 percent reduction is attributed to ongoing efforts by the credit reporting agencies “to refine practices related to the reporting of collections on consumer files,” according to FICO.
But not all is sunshine and roses.
The credit score provider reported that delinquency rates, particularly for bank cards, are also steadily climbing along with the average FICO credit score.
“As we’ve gotten further from the Great Recession, lenders are increasingly competing for new card volume, and part of that is loosening their underwriting criteria in order to be more competitive,” Ethan Dornhelm, Vice President of FICO Scores and Predictive Analytics, told CNBC.
Read the full report from FICO here.