As the Average Credit Score in America Falls, Here’s How to Swim Against the Tide

A new analysis shows that the health of consumer credit in the U.S. is falling. According to data analytics company FICO, the average credit score in America has fallen to 717 after over ten consecutive years of increases. After a long period of credit improvement following the Great Recession, it appears many consumers may be overextended.

As a result, high interest rates and rising prices have strained most Americans’ finances.

Overall, consumers have fallen deeper into debt. This has led to growing credit card balances and more missed payments.

According to the same source, over 18% of borrowers had a past-due missed payment of over 30 days on their credit accounts. That’s up from 16.5% a year before.

Understand the Factors Affecting Credit Scores

Several key factors shape credit scores. These include payment history, credit utilization, length of credit history, new credit inquiries, and types of credit used. Economic conditions and personal financial choices can also impact these factors.

During recessions, scores tend to decline as consumers miss more payments and rely more on credit cards. Wise use of credit and timely payments will boost scores. Missed or late payments can tank them.

Key Takeaway: Payment history, utilization, history length, new credit, and credit mix determine scores. The economy and money choices affect these factors.

Regularly Monitor Your Credit Report

It’s vital to check your credit reports regularly. This lets you catch errors or fraud quickly. Each year, you can get free reports from the major credit bureaus. Online services also provide free reports.

Reports list your accounts, balances, payment history, and more. Review for unfamiliar accounts or wrong information. Dispute big mistakes with the bureaus. Even small errors can drag down your score.

Monitoring reports also let you spot identity theft early. Look out for accounts you didn’t open. Review both your personal and business reports if self-employed.

Key Takeaway: Regularly check reports for errors or suspicious activity. Dispute mistakes with bureaus. Even small inaccuracies can lower scores.

Maintain Timely Payments

A history of on-time payments is crucial for your credit score. Payment history accounts for over one-third of a typical credit score calculation.

Even one 30-day late payment can cut scores by as much as 100 points. Set up alerts or autopay through your bank to ensure you never miss a bill. Many lenders let you pick a payment date.

If money is tight, call creditors to explain and request alternate payment arrangements before missing a payment. The goodwill deletion program may remove some late payments from your history if you ask.

Key Takeaway: On-time payments are essential. Set up autopay or reminders. Ask for help from creditors before missing payments.

Manage Your Credit Utilization Wisely

Your credit utilization ratio is the percentage of your total available credit you’re using. Experts recommend keeping this below 30%. Maxing out cards or loans can indicate risk and plummet scores.

Start by paying down balances to lower utilization. Set a target ratio and pay extra each month to reach it. Open a new card or ask for a limit increase if an account is maxed out. Just do this sparingly to avoid credit checks.

Spread balances across multiple cards. Using one card heavily hurts more than smaller balances on several. Make more than the minimum payment to pay off debt faster.

Key Takeaway: Keep credit utilization low by paying extra, opening new accounts rarely, and spreading debt across cards. Maxing out hurts scores.

Read More: How much will lowering my credit utilization ratio increase my score?

Be Cautious With New Credit

Each application for a new credit card or loan results in a hard inquiry on your credit report. Too many of these in a short period can suggest you’re desperate for credit and make lenders wary.

Before applying for new credit, wait at least six months from your last application. Shop and compare offers within a focused two-week period so inquiries are grouped and count as one.

Limit new accounts to one or two per year.

New accounts also lower the average age of your credit history, another important scoring factor. Use caution when considering new credit and only apply if there is a strong need.

Moreover, you should ideally select lenders that offer great rates and customer service.

Key Takeaway: Too many new accounts or inquiries can hurt scores. Apply sparingly, wait between applications, and compare offers in a short window.

Diversify Your Credit Mix

Lenders like to see a healthy mix of account types in your credit history. This can include installment loans, retail credit accounts, credit cards, and a mortgage. Having experience with different types of credit demonstrates you can manage various accounts responsibly.

A diverse mix will help your scores, but avoid opening accounts just for variety. Only apply for and open additional accounts as needed based on your spending patterns and financial situation.

In addition to the credit mix, having a few longstanding accounts also improves your history since length is a factor. Keep old accounts open unless they have unfavorable terms or fees.

Key Takeaway: Having different types of credit can aid your score, but only open useful accounts you need. Keep longstanding accounts open.

Read More: Can I Take Out a Personal Loan with a Low Credit Score?

Consider Credit-Building Tools

If you have poor credit or a thin history, specialized credit-building products can help establish a positive record. One option is secured credit cards that require a cash deposit as collateral and tend to approve applicants more readily.

Credit-builder loans are available at credit unions, and some banks report on-time payments to the credit bureaus. You deposit the loan amount in a savings account as collateral.

Becoming an authorized user on someone else’s credit card can also help you earn points from their good history. Just be sure they make timely payments and have low utilization.

Key Takeaway: Secured cards, credit-builder loans, and authorized user status help build credit. Use it if you have a bad or limited history.

Address Debt and Seek Professional Advice

Managing existing debts is key to improving your credit profile. Make at least the minimum payments each month, and pay down balances aggressively if you can afford it. Debt consolidation loans or balance transfers to lower-rate cards are other options.

If you struggle with serious credit card, medical or other debt, consult a nonprofit credit counseling agency or financial advisor. They can offer customized debt relief advice and help you negotiate with creditors.

Bankruptcy should be a very last resort. While it provides relief from unmanageable debts, it also remains on your credit history for 7-10 years and severely damages your credit score.

Avoid it if any other options are available.

Key Takeaway: Pay down debts and transfer balances to improve scores. Get professional advice for serious debt issues. Bankruptcy causes long-term score damage.

Stay Informed on Credit Scoring Models

It’s important to remember there isn’t just one universal credit score or scoring model. The FICO Score is the most commonly used model, but lenders may use VantageScore or even custom internal systems.

The scoring models can weigh factors differently. Lenders have their own approval criteria. Keep up with changes and news about the various credit scoring systems. Understand that even your FICO Score will vary between the credit bureaus depending on your unique history with each.

Stay informed and review your reports frequently. This will help you better understand the factors shaping your personal credit situation amidst the evolving landscape of credit scoring.

Key Takeaway: Many credit scoring models exist. Scores vary by system and bureau. Keep up with credit model news and check reports often.

Conclusion

A good credit score saves you money and opens doors for loans and credit cards with better rates and terms. As the average score declines nationally, be proactive in managing your credit health.

Monitor your reports diligently, make timely payments, keep utilization low, apply for new credit prudently, and diversify your mix of accounts. Seek help addressing debt issues. Staying informed on scoring models will also aid your efforts.

With vigilance and focus, you can swim against the tide and maintain or reach an excellent credit score despite broader economic challenges. Your creditworthiness will continue serving as a valuable asset.