Average U.S. FICO Score Hits New High
For the first time, the average FICO® Score in the U.S. has reached 704, showing a steady upward trend in US credit quality.
In July 2017, I wrote about the average U.S. FICO® Score hitting a milestone of 700, indicating that consumer credit and financial health continue to be strong. The momentum has continued, as the average FICO Score has risen again. For the first time, the average FICO Score in the U.S. has reached 704, showing a steady upward trend in U.S. credit quality.
Since bottoming out at a score of 686 in October 2009, we have seen eight consecutive years of increases in the national average FICO Score.
Figure 1 - National Average FICO® Score
Source: FICO Blog
What does this rise in score mean? Let’s take a look behind the number.
All Age Groups Rose
We also examined the shift in average FICO® Score between April 2017 and April 2018 by age band, to determine if the upward shift was more or less pronounced in certain age groups. While older people score higher in general than younger people, the average FICO Score shifted upwards to the tune of a consistent 4-5 points across all age groups.
Source: FICO Blog
Fewer People Score Poorly
The score distribution below shows that the increase in the average FICO® Score is largely attributable to fewer consumers scoring in the lowest score ranges (e.g. < 550), and greater numbers of consumers scoring in the very high super-prime score ranges (800+). But there are other factors to consider as well in assessing the trend of the average credit profile of U.S. consumers.
Source: FICO Blog
Fewer Profiles Have Negative Blemishes
We have noted that 23% of consumers have one or more collection agency accounts on file as of April 2018, down from 25.8% in 2017. Since payment history comprises roughly 35% of the overall FICO® Score calculation, this continued reduction in derogatory indicators on file is a clear contributor to the ongoing upswing in the FICO Score distribution. The Fed recently highlighted that consumer credit scores in the lower score ranges may be benefitting from NCAP-related efforts by the Credit Reporting Agencies to refine practices related to the reporting of collections on consumer files.
Source: FICO Blog
People Are Seeking Credit Responsibly
The percentage of the population with one or more “hard” inquiries (those posted to the file as a result of a consumer-initiated search for credit) hit a four year low of 42.2%. While not a strong driver of the FICO® Score, having a greater number of inquiries on file has been shown to be an indicator of increased repayment risk, and is factored into the score calculation.
Source: FICO Blog
Consumer Education Is Helping
Another potential driver of the continued increase in the national average FICO® Score could be increasing consumer education and awareness about their FICO Score. Research conducted by FICO and Sallie Mae in February 2018 found that consumers who frequently check their FICO Scores make better financial decisions and are more likely to have higher credit scores.
FICO continues to focus on consumer financial education, transparency and empowerment through our Financial Inclusion Initiative. Through programs like FICO® Score Open Access , we work with financial institutions to provide more than 250 million consumer accounts with free access to their FICO Score. We also recently launched FICO® Score Planner to help lenders and resellers to enable consumers to set a target FICO Score goal, desired time duration to reach their goal, and personalized potential actions consumers could take to help reach their target goal.
What’s Next? Maintaining Positive Consumer Credit Behavior
While the overall average FICO® Score has increased, the delinquency rates for certain products, bankcards in particular, have begun to increase. This is an area FICO will continue to monitor and analyze.
Figure 6 - Delinquencies Rise on Bankcards
Source: FICO Blog
To better manage their financial health, it is helpful for credit active consumers to keep three things in mind: pay bills on time, reduce amounts owed, and apply for new credit only as needed. To learn more about the five factors that make up the FICO Score, and review educational tools and resources related to the FICO Score, go to myFICO.com.
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FICO® Score High Achievers: Is Age the Only Factor?
<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>. This is largely because they have trade lines that have been open longer, which leads to higher scores (assuming the trade lines are in good standing and all other things equal). The most credit savvy among you will remember that length of credit history accounts for roughly 15% of the overall <a href="http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx" target="_blank">FICO® Score calculation</a>.</p> <p>But for younger consumers, it isn’t too helpful to say, “just wait until you are 50 years old, and that will fix things!” Thus, I decided to dive deeper with our analysis, including looking at the credit behavioural characteristics of younger consumers with high FICO® Scores.</p> <p>In this analysis, I looked at credit characteristics for the two highest score bands, 750-799 and 800-850, which have about 16% and 23% of the population, respectively. 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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