Credit Scores Hit An All-Time High, Even In This Economy – Forbes Advisor

The average credit score in the U.S. has hit a historic high of 718, according to a new report from FICO, the leading credit score analytics provider. After the score stayed stuck at 716 in 2021 and 2022, its recent rise is confounding.

That’s because consumers have racked up massive debt over the past couple of years. From high mortgage payments to expensive credit cards, everyone’s spending more thanks to inflation, rising interest rates and a tight housing market.

What’s going on here?

Ethan Dornhelm, FICO’s vice president of scores and predictive analytics, says that changes in credit reporting rules and consumer behavior may help explain the combination of higher FICO scores and mounting consumer debt. “The three drivers for higher scores that really stick out to me,” he says, “are a drop in credit-seeking behavior, some medical debt that’s been removed from reports and the continued education and empowerment in understanding credit data and credit score.”

Consumers Don’t Want New Credit

The number of new credit accounts you have is one of the five components of your FICO credit score calculation, accounting for 10% of the score. The other four components are payment history (35%), amounts owed (30%), length of credit history (15%) and credit mix (10%).

Dornhelm notes that, according to FICO’s data, fewer people are applying for and getting new credit.

“The rate of hard inquiries and new lines of credit has dropped in recent months,” Dornhelm says.

Your Medical Debt May Have Been Erased

Although just a small percentage of consumers carry significant medical debt—around 10%—new policies around medical debt reporting may also be helping to boost credit scores.

Earlier this year, the three main credit reporting bureaus, Equifax, Experian and TransUnion, adopted policies to remove any medical debt under $500 that was reported by collection agencies. That move came after the agencies’ decision to remove all paid medical debt from credit reports starting in July 2022.

You May Be Paying Closer Attention

More consumer awareness about the importance of good credit may be another factor in higher FICO scores, Dornhelm says.

Errors in a credit report can bring your credit score down, and they’re common. According to a Consumer Reports survey of 7,000 consumers, more than one-third (34%) of respondents said they found at least one error on their report, 29% noticed errors in personal information and 11% discovered account information errors.

But people who check their credit reports often are more likely to spot errors and correct them.

Prompt Mortgage Payments Raise Scores, but Renters Get Little Reward

Mortgage payments are regularly reported to the credit bureaus, so making your payments on time can significantly improve your score, even if you’re also carrying more debt. On a larger scale, recent data from across the nation reveals an all-time low for serious mortgage delinquencies–payments that are late by 90 days or more–according to analysis by CoreLogic, a data analytics company.

Renters, though, aren’t typically rewarded for prompt payments, says Dornhelm. “FICO did an analysis that showed 2% to 3% of renters had their rent reported,” he says. “The entire credit reporting system is voluntary…So property owners may not want to subject themselves to the [Fair Credit Reporting Act] if they don’t have to.”

How To Maintain a High Credit Score

• You can (and should) get your free FICO Score as often as possible. Consumers are entitled to one free credit report from each of the main credit reporting agencies each year. You can get all three at once or stagger them throughout the year.
• Use your credit card to check your credit score. Many credit card companies offer free credit reports and credit scores. If yours does, that can be an easy and inexpensive way to keep an eye on your credit profile.
• Look over your credit reports carefully. The credit bureaus sometimes have incorrect information, and some of it is disallowed. If you spot paid medical debt or medical debt under $500 on any of your credit reports, for example, contact the reporting agencies immediately.