Americans’ credit scores are higher than ever.
The average FICO score, a widely used credit rating named for the Fair Isaac Corporation, is now 704.
It hit that number in April 2018, according to a report from FICO released Monday, an increase of four points since the average score hit 700 for the first time in April 2017.
Americans’ FICO scores dipped to their lowest average in October 2009, when they were just 686 on average.
The scores are a considered a key rating of someone’s creditworthiness, and one that’s too low can shut consumers’ out of home mortgages, loans for cars, and even jobs. Higher credit scores give consumers access to better rates on loans and credit products like credit cards with higher rewards and more perks.
The scores range from 300 to 850 and are based on information including payment history (and whether the consumer has paid their bills on time), the amounts of money one owes to various lenders, and the length of credit history.
Scores of 800 and above are considered “exceptional,” those 740 to 799 are “very good” and 670 to 739 are “good.”
Why are FICO scores going up? For one thing, people know more about their credit and how to raise their scores than they did in the past, said Ethan Dornhelm, vice president of scores and predictive analytics at FICO.
What’s more: “Lenders have for a long time now, maybe in response to the Great Recession, been prudent in their underwriting,” he said. In other words, lenders are being more cautious and making loans to people who are more likely to pay them back.
One example: Just 23% of consumers with FICO scores today have any debts that have gone to collections, down from about 26% several years ago, he said.
Some consumers may have also benefitted from a new policy that removed civil judgments from some people’s credit reports, improving their scores with the three major credit bureaus, Equifax EFX, -0.09% , Experian EXPN, -0.31% and TransUnion TRU, -1.58% .
On average, scores increased 10 points because of the new policy.
Consumers have also been more responsible with their credit, potentially leading to a boost in their scores.
The percentage of people who are delinquent on their debts — meaning they are 30 days or more overdue — hit 1.73% in the first quarter of 2018, up from 1.64% in the fourth quarter last year, but still below the 15-year average of 2.14%. That’s according to the American Bankers Association, a banking industry trade group.
Also, Americans repaid $40.3 billion in credit card debt during the first quarter of 2018, according to an analysis of data from the U.S. Census Bureau, the Federal Reserve and credit agency TransUnion by the personal-finance website WalletHub.
That’s the second-highest amount paid off in one quarter since the first quarter of 2009, when consumers paid off more than $44 billion.
Consumers and lenders should continue to be cautious, though, Dornhelm said.
The delinquencies that are creeping back up could become a larger problem if left unchecked.
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