Tough times make for surging scores?

The average FICO credit score hit new record highs of 711 in July of 2020 – amidst a global pandemic, pending recession, burgeoning political turmoil, and widespread civil unrest, this seems a bit surprising. The number of consumers who had missed payments was actually also down significantly compared to January numbers, which is one of the primary metrics impacting credit scores.

While there is typically a lag between major macroeconomic trends and individual credit scores, according to FICO global lead Ethan Dornhelm, credit scores are actually still on the rise, possibly spurred by the early pandemic relief actions by lawmakers and lenders to keep the American economy afloat. The average credit card balance has also dropped from $6,934 in January to $6,004 in July – likely attributable to conservative consumer trends and utilization of stimulus funds to pay down debt.

Those lower credit card payments also make a positive impact in credit reporting – debt-to-income ratio is a primary credit score consideration, amounting to about 30% of a person’s FICO score. Forbearance and deferrals do not cause credit scores to drop – one more reason talking to lenders and exploring your options is so critical when and if the household budget gets tight.

In the wake of this news, it’s also important to note that the average American has over $90,000 in debt. As you likely know, responsible management of that debt actually helps improve a person’s credit score over time, but debt can be expensive to manage, standing in the way of long-term goals like retirement savings. CNBC Select recommends balancing debt with informed financial planning, sound advice about retirement saving, and becoming well-versed in credit card basics to ensure your debt is working to build your scores without draining your bank account.

Read more on savvy wealth building during a recession, here.

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Omar Khamisa
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Mission San Jose Mortgage
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