For the first time in over a decade, the national average credit score in the United States has experienced a decline, according to recent reports from FICO, the developer of one of the most widely used credit scoring models. The average FICO score fell to 717 in October 2023, down from a peak of 718 in April 2023. This marks a significant shift after years of steady improvement in credit scores.
The downturn in credit scores is attributed to several factors, primarily an increase in missed payments and rising consumer debt levels. As of October 2023, the average credit card utilization rate stood at 35%, up from 33% a year earlier. Additionally, over 18% of borrowers had a 30-day past-due payment on their credit accounts, a rise from 16.5% the previous year. These trends suggest that consumers are increasingly relying on credit cards to manage daily expenses, leading to higher debt and more missed payments.
The economic environment has played a role in this development. High interest rates and elevated consumer prices have placed financial strain on many Americans. The Federal Reserve's efforts to combat inflation have resulted in higher borrowing costs, making it more challenging for consumers to keep up with their financial obligations. This situation is particularly concerning for those who have not seen their incomes keep pace with inflation, leading to increased debt and financial stress.
The impact of these financial challenges is particularly pronounced among high-risk borrowers. Individuals with lower credit scores often face higher interest rates and stricter loan conditions, limiting their access to affordable credit. For example, borrowers with scores below 600 may encounter interest rates significantly higher than those with excellent credit, making it more difficult to manage existing debt and obtain new financing.
Looking ahead, experts caution that the trend of declining credit scores could continue if economic conditions do not improve. Factors such as potential job losses, reduced wages, and ongoing inflationary pressures may further strain consumers' financial situations, leading to more missed payments and higher debt levels. It is crucial for consumers to monitor their credit health and seek financial advice to navigate these challenging times effectively.
