Nov 23

Credit Scores Reach All-Time High

Credit Scores Reach All-Time High

Since the beginning of the pandemic, the average FICO credit score has increased by eight points to reach 716, according to Fair Isaac Corp. Pandemic-related relief programs and a decrease in consumer spending early in the pandemic may have helped Americans improve their credit histories by paying existing debts and curtailing new debt.

The increase has largely been driven by consumers who started with a credit score below 600. FICO usually considers a score between 670 to 739 to be good; anything below 580 is considered poor.

Consumers in that category averaged a 581 credit score in April 2020. One year later, those scores had climbed to an average of 601.

But economists warn that improvements could be wiped away with an increase in inflation, which is now at a 31-year high. Americans are paying more for groceries, gasoline, and products. That could lead more consumers to take on more debt, too.

Still, “inflation by itself … is not going to have a significant impact on the overall national credit score,” William Lansing, CEO of FICO, told MarketWatch. “But if prices outstrip income and people wind up taking on more debt—that obviously would have an impact on their FICO credit score. There’s also a seasonal component—typically in the fourth quarter around holiday time consumers take on more debt. So we could see a modest downtick from that.”

Earlier this fall, the Consumer Financial Protection Bureau reported that despite poor labor market conditions during the pandemic, renters’ financial conditions were improving. Renters’ credit scores increased by 16 points during the pandemic. However, those scores remain substantially below those of homeowners.

Renters could soon get a boost: Freddie Mac recently announced a new program to help renters build up their credit profiles by providing a means for owners or managers of multifamily properties to report on-time rental payments to the three major credit bureaus. Less than 10% of renters currently see their on-time rental payment history reflected in their credit scores. That could be preventing some from accessing credit or qualifying for some of the best rates. Read more: Freddie Initiative Adds Rent Payments to Credit Reports

Source:
“Credit Scores Hit an All-Time High During the Pandemic—Will Inflation Bring Them Down? FICO’s CEO Weighs In,” MarketWatch.com (Nov. 18, 2021); Consumer Financial Protection Bureau
©National Association of REALTORS®
Reprinted with permission

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