As the recovery from the recession of 2008-2012 continues, the good news for the creditworthiness of the average American continues to improve. The latest proof of Americans individual recovery is that the average FICO score hit 692 in April, 2014.
That is a one point gain over April, 2013 and a six point jump over the recent all-time low of 686 set in April, 2009. FICO has only been tracking the average credit score since 2005, so it is possible that it was higher prior to that. To place the 692 score in perspective, it sits on the high end of ”Average”. FICO offers scores that range from 300 to 850. A person must have a score between 700 and 749 to have a credit rating of ”Good” and a score of at least 750 to achieve a rating of ”Excellent”.
Result of Increased Financial Responsibility?
Anthony Sprauve, senior consumer credit specialist at FICO, believes that the higher average score is tied to an improved sense of financial responsibility since the recession ended. He went on to say,
”After the recession, consumers have become better stewards of their financial house; they’re paying more attention to their finances. They’re more educated and more aware, and I also think there are fewer confusing financial products in the marketplace.”
One possible factor in the improving credit scores could be that Americans have become more cautious with the amount of debt that they are taking on. Since credit utilization is a major aspect of credit scores, accounting for thirty percent of a credit score, it is easy to see how a lower debt load could be leading the upward tick in scores.
Tighter Controls on Credit
Another possible factor contributing to the higher score could be the tighter controls on credit. The leading factor behind the recession and lower credit scores was sub-prime lending. Many creditors were offering mortgages to borrowers who had questionable credit histories. In addition, many of these borrowers had payments that drove their budgets over the brink, causing a huge wave of defaults on all types of credit. The tightening of lending guidelines has eliminated some of the risky loans. This has led to fewer defaults and less frequent negative reporting to credit agencies.
Lenders are not the only one’s contributing to the financial stewardship being seen post-recession. Sprauve puts it succinctly:
”There was so much press about people mismanaging their credit, not paying close enough attention, not being active stewards of their financial ship. That was a wakeup call for a lot of Americans to change that behavior, to not trust lenders to do the right thing for them, that they need to do the right things for themselves, that they have to take ownership.”
We have long believed that Americans could achieve better credit ratings through education and awareness. This news seems to prove that theory in spades.