A new report from FICO reveals that the national average U.S. FICO score is 715, down two points since April 2024.
While 715 is considered to be in the “good” score range, the fact that the average is ticking downward could be an economic red flag.
“When credit scores drop, it is an indicator that a sizable number of consumers are having trouble with their finances,” says Michael Sullivan, a personal finance consultant with Take Charge America, a credit counseling and debt management agency. He points out that although employment figures have remained fairly steady, costs have risen rapidly, especially for items low- and middle-income individuals buy.
FICO notes that this is the first notable change since COVID-19 pandemic-era protections began phasing out.
“Consumers are dealing with rising rents, increased car loan payments, student loan payments that had all but disappeared, as well as significant increases in insurance, medical care and food,” Sullivan says. Collectively, the rising costs for these expenses are putting stress on people who already had slim margins of error.
Here’s what the report revealed, along with tips on how to protect your credit health in times of turmoil.
[Read: How to Prepare Your Finances for a Layoff]
Digging Into the FICO Findings: Student Loan Reporting and Credit Utilization
While FICO surmises that the score average drop could be partially attributed to the resumption of student loan reporting after a multiyear pause due to COVID-19, the more concerning trend is a rise in delinquencies. The percentage of consumers who are 90 days or more behind in their payments rose from 7.4% in January to 8.3% in February, the highest level since January 2020.
“The growth of this group is worrisome,” says Sullivan, since it’s a reflection of the most challenged consumers. He also notes that when this statistic rises, it is often followed by a rise in creditor charge-offs, defaults and bankruptcies.
The news wasn’t all bleak. Credit-utilization rates improved slightly. This refers to the amount of debt people carry relative to their credit limits, and it’s a key component of the FICO score model. Average credit card utilization decreased in one month, from 36.6% in January to 36.1% in February. This implies that people were able to make some progress paying off their post-holiday bills.
However, that utilization rate is still higher than the 35% level it was back in January 2020. Ideally, consumers should aim to keep their utilization below 30% and as close to single digits as possible to maximize their credit scores.
[Read: How 4 People Paid Off Debt in Record Time]
How to Protect Your Credit Health Amid Financial Uncertainty
The slight drop in the national average FICO score could serve as a wake-up call that you are due for a credit health check-up. Follow these score-saving strategies.
Look Beyond Your Credit Score
While your credit score is a snapshot of your current status and perhaps an early indicator that you may be in financial trouble, your credit reports have more details about each of your accounts that can help you formulate the best plan to make improvements, Sullivan says. “Going to annualcreditreport.com should be a monthly trip for any consumer in debt,” he says.
Review Your Debt and Create a Debt Payoff Plan
You should have an accurate picture of exactly what you owe and the interest you’re paying on each account. “Consumers who have the capacity to repay debt need to have a plan based on strategy,” Sullivan says. Whether it’s the snowball method, avalanche method or some other approach, paying off debt requires planning and discipline.
Keep Up With at Least Minimum Payments
“Every missed payment represents penalties, interest and a decreased credit score, all of which cost real money and increase debt, making it even more difficult to get out of debt,” Sullivan warns. If you’re struggling to pay your minimums, get in touch with the credit issuers before you miss a payment to discuss your options.
[Read: What to Do if You Fall Behind on Bills]
Look Over Your Budget to See Where You Can Cut Back
“Paying down debt means freeing up all the cash possible for payments,” Sullivan says. This may require short-term sacrifice, including lowering your standard of living. “Anyone who is employed and missing debt payments is living beyond their means,” he says.
Work on Growing Your Emergency Fund
A recent U.S. News survey found that 2 in 5 Americans (42%) do not have an emergency savings fund, while nearly the same number (40%) said they didn’t have enough saved to cover a $1,000 emergency expense.
On payday, automate small deposits (whatever you can afford) into a separate savings account that is reserved to cover unexpected expenses. This can help you avoid relying on credit cards.
Seek Professional Help if Needed
If financial stress gets to be overwhelming and you’re struggling to come up with a plan, don’t go it alone. There are options for free financial advice, including credit counseling and pro bono financial planning help for qualified Americans. You can also see if your employer offers free access to a money coach.
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The Average U.S. FICO Score Has Dropped to 715. Here’s How to Protect Your Credit Amid Financial Uncertainty originally appeared on usnews.com
