According to the latest analysis from FICO, average credit scores are rising and the number of delinquent payments are dropping. This article from The New York Times looks into some of the reasons for these developments – highlighted by the continuing recovery of the housing market – as well as some valuable credit score advice from Ethan Dornhelm of FICO.
Consumers appear to be better these days at managing their use of credit. The national average FICO score is now 695 – the highest it has been in at least a decade, according to the latest analysis from Fair Isaac Corporation, the score’s creator. Nearly 20% of consumers now have scores above 800.
The rise in the average score is partly because of a drop in seriously delinquent accounts, since payment history is a major component of credit scores.
The passage of time also helps, said Ethan Dornhelm, a principal scientist in FICO’s analytic development group: Older, well-managed accounts help increase scores, and negative information – like accounts that are sent to collection – typically starts dropping off credit reports after seven years. So the impact of delinquencies that weighed on scores during the recession is most likely starting to recede.
Stephen Brobeck, executive director of the Consumer Federation of America, said in an email that many consumers committed to reducing burdensome credit card debt after the recession. That probably helped their scores by lowering their card debt relative to their credit limit, an important factor in determining credit scores.
The drop in late payments is mostly a result of an improvement in the real estate segment as the housing market continues to flourish. Late payments in other areas are actually ticking upward.
In addition to a better economic picture, another contributor to higher scores may be the wider availability of information about credit scoring in general. “Don’t underestimate the influence of the number of places now giving out credit scores at no cost,” said the credit expert John Ulzheimer.
Numerous credit card companies, lenders and banks, both large and small, now offer free periodic access to credit scores, and more continue to join the pack.
The numbers provided are true credit scores, reflecting those used to make lending decisions. “Consumers are increasingly well informed and aware of their credit score,” said Mr. Dornhelm.
