Average FICO scores have dropped for the second year in a row to a low not seen since the Great Recession. This might sound alarming, but there are some ways that consumers can protect their scores.
“The first step is to figure out where you stand,” Ted Rossman, a senior industry analyst at Bankrate, told WBBM Newsradio’s Rob Hart on “Noon Business Hour” this week. “Go to annualcreditreport.com, pull your credit reports for free, see if there are any mistakes on there.”
Following the COVID-19 pandemic, U.S. consumers have been rocked by a double whammy of inflation (which makes consumer goods more expensive to buy) and high interest rates (which makes it more expensive to borrow money). While the Federal Reserve Bank tried to tame inflation with interest rate hikes, those increases have been making credit card payments more daunting for many consumers.
Bloomberg reported this week that the average FICO score dropped two points to 715 this April compared to April 2024, citing a Tuesday report from Fair Isaac Corp. In 2009, during the Great Recession financial crisis, scores dropped three points to 687 and Bloomberg called this year the “worst” for consumer credit since that crisis, with Gen Z borrowers hit hardest.
“About one in three student loan borrowers are behind on payments many of them seriously behind so student loans are definitely in issue,” said Rossman when Hart asked about the biggest factors pulling credit scores down. “We also see elevated delinquency rates for credit cards, auto loans and personal loans. All four of those categories – student loans and those other three… those are all at or near recent highs since the great recession. You know, very high delinquencies on a lot of those products.”
As many consumers know, credit scores aren’t just a point of pride. They can be used to determine whether people are eligible for auto loans, mortgages, and credit cards, according to the Consumer Financial Protection Bureau. Credit scores are also sometimes used to screen tenants and determine credit limits.
After checking their credit scores, consumers who want to lift up theirs can start with making payments on time. Rossman said another trick might be to get on another person’s card – maybe a parent – as an authorized user. If that person uses their credit responsibly, it can help lift the user’s credit too.
Additionally, young people building their credit can also sign up for programs that add utility payments, streaming payments and rent to their score. Although, missing those payments could bring down scores too. Hart mentioned a 0% balance transfer, and Rossman said that’s a good idea too.
Sometimes even people with stellar payment habits can get a credit score ding due to their utilization. Rossman has a tip for that issue too.
“Throwing an extra mid-month payment or two on your credit card to make that statement balance as low as possible relative to the credit limit,” he explained. “Even people with otherwise good financial habits can be dragged down by high utilization. So, pay those credit cards maybe even more than once a month if you can.”