Thank the strong economy and the low unemployment rate. At 703, the average FICO score reached an all-time high at the end of 2019, a two-point increase from the year before, according to Experian’s 2019 Consumer Credit Review. That score would land the average consumers within the “good” range of credit scores.
“Credit scores are a lagging indicator of the economy and consumer confidence,” said Rod Griffin, Experian’s director of consumer education and advocacy. “As we’ve seen the economy improve, we’ve seen scores increase.”
With the unemployment rate at 3.5% and wages up 4% over the past year, consumers have the financial resources to pay their debts. More than that, said Griffin, the improving scores demonstrate that consumers are using credit responsibly.
Factors like paying bills on time and maintaining a low debt-to-credit ratio — made more possible in a strong economy — are among the most heavily weighted actions in determining credit scores, Griffin explained.
“It’s important to also look at how consumers are managing their debt,” Griffin said. “Delinquency rates are decreasing, and that’s a good sign.”
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According to the New York Federal Reserve and Equifax, all delinquencies are down sharply over the past decade. In 2010 the delinquency rate was just under 12%. At the end of 2019, it was 4.4%.
Not surprising, Experian’s report shows that baby boomers have the highest scores, but younger consumers are catching up. Millennials, those ages 24 to 39, increased their scores by 25 points since 2012, more than any other generation. They now have an average score of 688.
“For a long time millennials were reluctant to use credit, so they were slow in building their credit,” Griffin explained. Now they’re growing up, buying homes, having children and saving for retirement. Those financial moves have had a positive effect on their credit scores.
Credit scores aren’t a proxy for financial well-being
But credit scores alone only tell one side of the story, some observers said. While consumers are paying their bills on time, that doesn’t necessarily mean they are making financial progress.
“Everything is well and good when people have paychecks,” said Stephanie Genkin, fee-only financial planner and founder of Brooklyn, New York-based My Financial Planner.
Genkin’s point is punctuated by the fact that debt has reached a record high as well. According to the Federal Reserve, Americans hold a record $13.9 trillion in consumer debt. While most of it is mortgage debt, student loans and credit card debt is on the rise, too.
“There are a lot of people who are just treading water and not getting very far ahead,” said Ted Rossman, credit card industry analyst with creditcards.com
According to creditcard.com’s research, two-thirds of people with credit card debt owe at least as much as they did 10 years ago.
“Keeping up is not necessarily enough,” Rossman said. “If this is what happens in good times, then what happens if there’s a recession? A lot of people are still living on the edge.”
If your credit score hasn’t followed the national trend upward, take advantage of today’s strong economy to make improvements.
“It will be a lot harder to improve your credit if we start to see layoffs,” says Genkin.
Here are 3 ways to boost your credit score, according to experts.
1. Pay your bills on time
The biggest determinant of your credit score is your ability to make on-time payments. According to FICO, your payment history makes up 35% of your credit score. Payments a few days after the due date won’t make a difference, but once your payments are more than 30 days late, your score will get dinged.
“Set up auto payments so you never forget to pay your bills on time,” advised Genkin.
2. Pay down debt
The first order of business is to pay down your credit card debt, Genkin and others said. Credit utilization — the ratio between how much credit you have available to how much you are using — counts for 30% of your score. Keeping credit utilization down below 30% can boost your score. For example, if you have $10,000 in available credit, use no more than $3,000 at any given time.
If you have the financial wherewithal, make a payment to bring down your debt. If not, use the strong economy to land a side gig to free up money paying down your debt. There will be fewer ways to find cash if the economy starts to falter.
3. Get credit for positive financial behaviors
As the Experian data shows, the younger the consumer, the lower their score. Gen Z (ages 18 to 24) has a lower average score than millennials, who have lower scores than Gen X (ages 39 to 54) and so on.
In fact, Experian reports that on average, consumers don’t achieve a 700 score until they reach age 54.
That’s because another big factor in determining credit score is the length of your credit history, which accounts for 15%.
To get there quicker, try a service like Experian Boost, a program that allows the credit bureau to scan your bank account to include cellphone and utility payments into the calculation of a credit score. That can give you credit for paying these bills on time, something that isn’t included in traditional credit-scoring algorithms.
“Most people will see a benefit, with an average increase of 13 points in their score,” said Rossman. “If it doesn’t help, you can revoke Experian’s permission to scan your bank account.”
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