Average U.S. FICO Score at 711, But Uncertainty Abounds
It generally takes some time for the effects of a major macroeconomic event to start to show up in consumers’ credit reports.
The data is in, and the average U.S. FICO® Score now sits at 711. This is 5 points higher than the average score just a year ago, and is likely to be viewed as a surprise result in light of the impacts that the COVID-19 pandemic has had on U.S. consumers and the global economy.
Those surprised by this latest figure may have thought that the FICO® Score is an indicator of where the economy is headed. But in fact, there is a bit of a lag between when a major macroeconomic event occurs and when the FICO® Score reflects that event on an aggregate basis. And that’s because it generally takes a few months for the effects of that event and the accompanying financial strain to start to show up in consumers’ credit reports, in the form of rising balances, credit seeking behavior, and eventually for some, missed payments. For example, during the Great Recession, the average national FICO® Score didn’t hit its lowest point until late 2009, well after the recession was underway. In the case of the COVID-19 pandemic, the lag between the onset of the pandemic and when credit files begin to show the financial strain that millions of Americans are feeling is further affected by the significant steps taken by both the government (stimulus spending) and private sector (lender payment accommodations) to help consumers ‘bridge the gap’.
There are a number of likely drivers behind this latest average score figure:
- Missed payments reported in the credit file are down. As of July 2020, just 7.3% of the population had a 90+ day past due missed payment in the past 6 months. This is down from 8.1% pre-COVID (Jan 2020). While millions of U.S consumers have lost their jobs and/or experienced disruption to their income since the onset of the pandemic, the aforementioned combination of government stimulus programs such as enhanced unemployment benefits, as well as payment accommodation programs being offered by lenders, appear to have thus far enabled many consumers to avoid falling behind on their bills. Staying up to date on your bills can have a substantial and positive impact on your FICO® Score. In fact, it represents some 35% of the overall FICO® Score calculation.
- Consumer debt levels are decreasing. Whether due to reined in spending in the face of the economic uncertainty wrought by the pandemic, or simply due to having fewer opportunities for spending on discretionary items such as restaurant, retail, and travel, consumer debt levels during the pandemic are down substantially. As of July 2020, U.S. consumers had on average $6,004 in credit card debt, down from an average of $6,934 back in January 2020. A reduction in amounts owed (30% of the FICO® Score calculation), and in particular, the amount of credit card limits being used, can yield measurable gains in a consumer’s FICO® Score.
- The FICO® Score doesn’t negatively consider forbearance/deferment agreements. Accounts reported as "current" with credit reporting codes related to forbearance or deferment, or that the consumer has been ‘affected by disaster’, will not cause the FICO® Score to drop. This should be welcome news to the millions of consumers holding accounts that have been reported in some form of payment accommodation since the onset of the pandemic. In fact, placing a consumer in forbearance or deferment, along with reporting the account status as "current" instead of as "delinquent", will permanently ensure that their FICO® Score won't be impacted by late payments related to the effects of the COVID-19 pandemic.
So where does the average FICO® Score go from here? There are a number of factors that will answer that question: What is the shape of this downturn and subsequent recovery going to look like? What will be the effects of any new government stimulus package? Will it enable consumers who experienced job loss and/or income disruption due to COVID-19 to weather the storm until the job market has largely recovered? The answers to these questions are still unfolding, and will be a major driver of the direction and magnitude of any shift in the average U.S. FICO® Score over the coming months.
For more insights, FICO will be presenting a webinar on November 11th - Emerging Consumer Credit Risk Trends and Insights in the Time of a Pandemic: What is Similar and What is Different from Prior Downturns? To learn more, register here: https://events.fico.com/taking-control/agenda/session/398660.
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<p>FICO’s latest research on <a href="http://www.fico.com/en/blogs/risk-compliance/us-credit-quality-rising-the-beat-goes-on/" target="_blank">national FICO® Score distribution</a> shows that US credit quality continues to trend upwards, with an increasing number of consumers scoring in the highest scores ranges. Given that, we decided it was time to refresh our study on “<a href="http://www.fico.com/en/blogs/risk-compliance/infographic-what-does-a-high-credit-scorer-look-like/" target="_blank">FICO® Score high achievers</a>,” where we examine the credit behavioural profiles of consumers with higher credit scores.</p> <p>As expected, our latest study showed that older people generally have higher scores, as has been the case in our <a href="http://www.fico.com/en/blogs/risk-compliance/age-before-beauty-credit-worthiness-before-youth/" target="_blank">past research</a>. 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I further broke this down by looking at the characteristics of the youngest 15% in each group, which occurs at age 29 for the 750-799 group and 43 for the 800-850. We used FICO<strong>®</strong> Score 9 for our analysis, and examined typical variables of the categories that go into the make-up of the score.</p> <p><a href="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png"><img class="alignnone size-full wp-image-29367" src="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png" alt="fico-score-high-achiever-table" width="715" height="747" /></a></p> <p>Since there’s a lot to dissect in this chart, I’ll highlight a few findings that struck me: <ul> <li><strong>Credit history.</strong> Higher scores are undoubtedly associated with a longer time on file. What’s striking is the higher average time on file for the 800+ group, both overall and for revolving accounts (the most common trade line). Clearly, it helps to start credit use early in life – but that’s not the sole determining factor for high scoring. The younger cohorts in both the 800+ and 750-799 groups have time on file medians significantly less than their older counterparts.</li> <li><strong>New credit.</strong> High credit scorers do, in fact, pursue new credit. We see little variation in months since last trade line opening and last inquiry among all groups observed.</li> <li><strong>Pay on time.</strong> As you might expect, the further in the past the delinquency, the higher the score – and that’s <u>if</u> a delinquency ever happened. 95% of the 800+ people and 72% of the 750-799 group have never been delinquent, which is a striking contrast to the 57% for the total population. The percentages for the younger groups are even higher, especially so for the 750-799ers. Collection items are also scarce for these high scorers. While 23% of the national population have collection items greater than $99, the figures are only 0.5% for the 800+ group and 3% for the 750-799 group. It is clear that, in conjunction with starting a credit file early, paying on time is a key trait of the FICO® Score high achiever.</li> <li><strong>Balance and utilization.</strong> Finally, we look at how credit is being used, focusing on revolving product use. (Since most people only have one mortgage or one auto loan, variation in instalment product figures is minimal and driven by payment history, which is near perfect for high scorers, as we’ve seen.) FICO® Score high achievers tend to have more open revolving accounts. While the % active trades and utilization are generally lower, by no means do high scorers avoid the use of credit products. What drives the difference here is the amount of <u>available</u> revolving credit utilized. The 800+ group is roughly 1/4 of the national median, both in total and on their highest utilized card; they also have lower balances and more cards<em>. </em>The 750-799 group is more active and higher utilized, but still only at 2/3 of the national figures. The young 750-799 group compensate with lower revolving balances and, as a result, lower utilization, which is in line with what we see for the 800+ group.</li> <li><strong>Benchmarks.</strong> I’d like to point out that while this study provides good benchmarks of the typical credit traits of the FICO® Score high achiever, individual credit profiles will vary widely. And keep in mind that when we sort groups of consumers as a whole by different behaviours, some results may look superficially odd. For example, the 800+ band has a longer median average open account time (128 months) than average revolving months on file (140 months).</li> </ul> So, what do we conclude? A huge takeaway is that high scorers don’t have too much in the way of serious delinquencies and negative public record data.</p> <p>In most respects, the young 800+ people are like their peer group. They really only differ markedly in their shorter credit history and higher non-mortgage balance, both of which are a function of life stage. Our results show that you don’t have to be a credit product hermit; these high scorers have more credit cards. The takeaway is to start credit activity early and maintain well-managed and moderate usage.</p> <p>In many ways, the young 750-799 people are more interesting because their age profile is much younger. Their credit characteristics differ more from their peer group, particularly in terms of length of credit history. They compensate by having almost pristine credit records and lower balances.</p> <p>Ultimately, 39% of US consumers are FICO® Score high achievers, which they accomplish by following common-sense credit practices. It ain’t rocket science!</p>
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