Good News! U.S. Credit Scores Have Never Been Higher – But Debt Is Climbing Too

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Credit score rising, but so is debt
Image Source: Flickr User Investment Zen

 

The Wall Street Journal (WSJ) recently shared the good news that this spring, U.S. credit scores reached their highest levels since FICO started tracking scores (which began back in 2005). The average American’s credit score is now 700. That’s impressive on the scale of 300 to 850 used by Fair Isaac Corporation. It’s not perfect credit by any means, but it’s good enough to get a consumer into a decent car loan, mortgage, and credit card deals with favorable interest rates.

Credit Scores Are On the Uptick All Around

A FICO score of 700 ranks as “good,” which is defined as roughly 670-739 points. Even those consumers that don’t average 700 are sitting better than they were a few years ago. WSJ also reported that the percent of consumers with fair credit has dropped. The range for “fair” is 580-669. As of the most recent report, just 20% of Americans have fair credit compared with 25.5% in that range back in 2010. Scores from 300-579 are considered “very poor.”

The Great Recession Made Us More Careful About Debt

After the recession tore family finances apart in the late 2000s, many people are now gun shy about racking up debt. Not only that, but Americans have been saving more of their money. Personal savings now average 5.3% from recent surveys, which is far and above savings statistics from pre-recession numbers. Consumer default rates on debt are also much lower than in recent years which means people are handling their debt load more responsibly. These are all good signs.

Other Debt on the Rise, Cause for Concern?

Although average credit scores are higher and delinquency rates lower, there are other concerning statistics. Student loans and credit card debt are both on the rise, both no exceeding $1 trillion. U.S. News reports that the average American’s debt profile is starkly different from a decade ago with student and auto loans plus credit cards taking precedence over mortgage debt as many struggle to step into home ownership. Household debt at its peak in 2008 was $50 billion less than it stands today at $12.7 trillion.

Consumer Confidence Up, but Debt Mitigates Spending

Despite consumer confidence in the economy, Nasdaq retail analyst Josh Elman is concerned. Elman told U.S. News that the average consumer “isn’t spending as robustly as everyone had hoped for, especially given the strong employment situation” and added, “recently, I’ve started to think about whether the consumer’s too stretched.” By this, he means that despite the healthy job market, people might be too tapped out by existing debt to spend which can slow consumer and economic growth.

Caution: Credit Card Delinquency on the Rise

While debt delinquency overall is lower than it has been in years, credit card delinquency is on the rise which might indicate consumers have overspent and are now struggling to pay the piper. But the flip side of the booming credit market is that if you’re rebuilding your credit after a bankruptcy, this could be a perfect time to get into new credit card accounts while the market is wide open. However, the key to using credit cards to improve your credit is to use them sparingly and pay off in full each month.

A Healthy Economy Is a Good Time to Re-establish Credit

If you’ve just come out of a bankruptcy or are considering bankruptcy to shed debt you can no longer manage, now might be a very good time for you to get out from under debt and kick-start a new and improved credit score. The sooner you get rid of your old debt and get a clean financial slate, the faster you can be on the road to financial recovery and a credit score rebound. Federal Reserve research shows that those that choose bankruptcy see higher credit scores sooner than those that muddle on in debt.

To find out more about improving your credit score after bankruptcy, contact Credit Score Keys. We help North Carolina consumers coming out of bankruptcy to regain their financial footing and re-establish their credit. Call 919-495-2365 today for a free consultation.

 

 

Resources:

US News

Wall Street Journal

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