National average FICO credit score did not increase between April 2021 and April 2022, news shows FICO data. While the average score remains solidly in range at 716, this is the first time since October 2012 that the average FICO score has not increased year over year and comes after a sharp increase in the first year. of the COVID-19 pandemic.
This development is not concerning, says Can Arkali, senior director of scores and predictive analytics at FICO. With an average score of 716, “it’s clear that consumers have become more aware of their credit health,” he says.
There are several reasons why the national average FICO score has remained the same, and there are still many steps consumers can take to improve their own credit scores.
Why the Average FICO Score Didn’t Increase
Small changes in consumer behaviors that influence FICO scores help explain the situation. “While still below pre-pandemic levels, missed payments and consumer debt have increased slightly, and more consumers have obtained new credit at levels close to pre-pandemic levels, all of which are important drivers of the FICO score,” says Arkali.
The percentage of the population with a missed payment at least 30 days late at some point in the year increased by just over 1% year over year. Missed payments are important, since payment history accounts for 35% of a consumer’s FICO score.
Average credit card usage increased by 5% between April 2021 and April 2022, although it remained below April 2020 levels.
At the same time, average credit card balances rose just over 7% year over year, according to FICO. Amounts owed represent 30% of the FICO score, and consumers with credit utilization ratios above 30% are likely to see lower scores.
This increased use could be dangerous in the current environment of rising interest rates. “The cost of borrowing money is now higher,” says John Bergquist, managing member of Lift Financial. “That means debt payments will be bigger.”
More and more consumers are also opening new loans year after year. New credit accounts for 10% of the FICO score calculation, and too many serious credit inquiries will lower your credit score.
Bergquist is telling consumers to cut back on their borrowing as rates will likely continue to rise. “Inflation is also extremely high,” he says. “That means Americans are paying more for everyday items, leaving them with less money to pay off their debt.”
How did the first year of the pandemic affect credit scores?
The first year of the pandemic saw a “significant increase” in the average FICO score, Arkali says. The national average score fell from 708 to 713 between April and October 2020.
“The combination of government stimulus programs such as the CARES Act and payment accommodation programs offered by lenders has allowed millions of consumers to catch their breath and pay off their debts on time, which is a rewarding factor. by the FICO score,” he says.
How to improve your credit score today
Advice on how to improve your credit score hasn’t changed: “For a good FICO score, keep your debt level low and pay your debt on time,” says Arkali. This applies to all types of credit, including installment loans and credit cards.
As new credit card accounts have increased among consumers, they need to remember that new credit is also a factor in a credit score and think about how they pay their monthly credit card bills, Arkali says.
“When it comes to paying off credit card debt, prioritizing paying off credit cards closest to the maximum limit may benefit consumers more than spreading equal payments across multiple credit cards,” says Arkali.
You will also need to consider factors such as the impact of closing a credit card on your credit. “You should also keep lines of credit open because closing lines of credit will negatively impact your credit score,” says Bergquist.
For its part, FICO provides resources including Score a Better Future, a program that aims to improve financial literacy through education and credit counseling.