To the likely surprise of nobody in the accounts receivable management industry, fewer consumers are missing their debt payments than ever before, consumers are carrying less debt, and there are fewer consumers actively seeking to borrow money, which all contributed to the average credit score among consumers in the United States setting a record high.
The average credit score for a consumer was 716 as of April 2021, according to data released recently by FICO. That is the highest average since FICO began releasing the data point 16 years ago. In that time, the average credit score has increased from 28 points, starting at 688 in October 2005.
Many in the ARM industry have hypothesized that the COVID-19 pandemic — with all of its stay-at-home orders and remote work opportunities — has provided consumers with additional time, and they are using that time to examine their credit reports and financial situations and making payments on debts that they may not have paid in the past. That hypothesis may be borne out by FICO’s data, which shows that the rise in the average credit score is coming from across the spectrum of credit. For example, consumers who had a credit score between 550 and 599 in April 2020 have seen their credit scores improve by 20 points, on average.
FICO attributes the increase in credit scores to three key factors:
- Only 15% of consumers had a past due payment on their credit reports that was at least 30 days old, down from 19.6% in April 2020.
- The average credit card balance has dropped 10% in the past year.
- There has been a 12% decrease in the number of hard credit inquiries in the past year.
While the average credit score has increased, FICO did note that 17% of consumers had a decrease in their credit score of at least 17 points in the past year. Those individuals are the consumers who have likely been hit the hardest as a result of the COVID-19 pandemic.
