The COVID-19 pandemic brought enormous economic devastation to the United States, at both the national level and for individual consumers. Millions of Americans were laid off, furloughed or left struggling to make ends meet. But despite widespread financial struggles, consumer credit scores rose significantly last year, according to reports.
How Much Have Credit Scores Risen?
The average FICO® Score rose from 703 to 711 last year, an eight-point increase. While credit scores have risen steadily for the last decade, last year’s increase is noteworthy for two reasons. First, average credit scores typically only increase by one or two points from year to year. Secondly, last year put severe and unique financial pressure on millions of Americans.
What is Driving Credit Scores?
Reports have linked the significant rise in credit scores to consumers shrinking their debt, using less of their available credit and, perhaps, surprisingly, reducing late payments and delinquent accounts. Despite the challenges of last year, it seems that many Americans were able to manage their debt in a way that benefited their credit scores.
Average credit card utilization shrank by 12% last year, which positively impacted credit scores by reducing the amount of available credit that consumers are using. There are a number of reasons this could be. It’s possible that consumers were laser-focused on paying down credit card debt during the pandemic. It’s also possible that consumers simultaneously tightened their budgets as travel and restaurant spending options became more limited. Finally, consumers may have used their stimulus checks and expanded unemployment benefits to pay off credit card balances.
The number of consumer accounts in delinquency – meaning late on payments – also dropped by 10%. Consumers may have used their stimulus money to pay their bills, avoid late payments and worked with their service providers when they were unable to pay on time.
What Demographics Saw Rising Credit Scores?
Every age group saw average FICO® Scores positively affected last year. The largest impact was reserved for millennials and Gen Xers, who saw their average FICO® Score benefit by 10 points or more. This positive impact also occurred throughout the country, with consumers in all 50 states and Washington, D.C., seeing the affect.
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