Even though more individuals are failing to meet their debt obligation amid soaring interest rates and price pressures, there has been minimal change in the average credit score. This intriguing trend is monitored by FICO, which gauges the average credit score biannually to evaluate the financial condition of Americans. According to the latest release, the mean credit score is static at 717, matching the prior period and just a point lower than the corresponding period last year.
The persistence of average credit scores is particularly noteworthy as consumers increasingly rely on credit cards to cope with surging prices for everything from food items to housing rents. Steep borrowing fees have further strained household budgets, forcing many to grapple with their outstanding debts.
Can Arkali, the Senior Director for Scores and Predictive Analytics at FICO, pointed out that even though there is an upward trend in missed payments for important liabilities like home mortgages and car loans, delinquencies are yet to surpass pre-Covid markers. This has helped sustain the average credit score in the U.S.
However, the surge in missed payments on credit cards is a cause for concern, Arkali indicated. He explained, "Missed payments on bankcards have escalated to levels surpassing those prior to the pandemic. Such defaults could have a significant impact on individuals experiencing financial strain, potentially leading to an uptick in credit card usage and subsequent defaults."
Recent data as of April 2024 shows that more than 18% of borrowers would be late by 30 days or more on at least one of their credit accounts in the past year, reflective of a 5% increment from the previous year. The average credit card utilization rate, the ratio of a person's credit usage to their credit limit, rose to 35%, marking a 3% increase from April 2023.
Lastly, while the Federal Reserve recently reduced their benchmark interest rate, the cost of borrowing continues to be significantly high on a historical scale. Hence, fewer individuals are opting for new loans or credit. In fact, only 44% of people opened new credit accounts in the last year, a slight drop from the last year's 45.5%.