In recent years, consumers have increasingly turned to credit cards as a means of financial support. This reliance on credit cards has led to a concerning trend where the national average credit score has begun to decline. According to a report from FICO, a leading developer of credit scores used by lenders, the average credit score in the United States fell from a high of 718 to 717 at the beginning of 2023, marking a significant shift from the upward trajectory seen over the past decade.
One of the key factors contributing to the decline in credit scores is the increasing debt burden carried by consumers. High interest rates and rising prices have put a strain on the financial well-being of most Americans, leading to a surge in credit card balances and missed payments. FICO’s findings reveal that the average credit card utilization has increased to 35%, up from 33% the previous year. Additionally, the percentage of borrowers with more than a 30-day past-due missed payment has risen to over 18%, compared to 16.5% in the prior year.
The Covid-19 pandemic played a significant role in exacerbating the situation, as government stimulus programs and increased household savings temporarily boosted credit scores to a historic high in April 2023. However, as these safety nets were gradually phased out, consumers depleted their savings and found themselves facing financial challenges. With savings rates trending back down and stimulus checks no longer available, consumers are now struggling to meet their credit obligations.
A crucial point to consider is the relationship between credit scores and borrowing. Generally, a higher credit score opens up more opportunities for loan approvals and lower interest rates, while a lower credit score can limit financing options and result in higher interest charges. With the average credit card interest rate already exceeding 20%, borrowers with lower credit scores are at a greater disadvantage. Maintaining a good credit score, typically above 670, is essential in today’s economy to access favorable financing terms.
According to experts, some of the best ways to enhance credit scores include consistently paying bills on time and keeping the credit utilization rate below 30%. By managing debt levels effectively and avoiding high balances, borrowers can minimize the negative impact on their credit scores. It is crucial for individuals to prioritize financial responsibility and strive to maintain a good credit standing in order to navigate the challenges posed by the current economic climate.
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