According to information released back in July, the FICO average credit score hit a record high averaging 711. It may seem counterintuitive that the average credit score should keep rising amid a global pandemic. The reality is that numerous indicators show that the economy is struggling badly amid a global public health crisis. Tens of millions of people in the United States are currently unemployed and struggling to pay their bills. On the other hand, it’s important to note that average credit scores don’t change quickly.
FICO credit scores are not a barometer of the economy
FICO credit scores are not necessarily a barometer of economic development. There is usually a delay between a major economic event and the credit scores’ response. For example, during the last recession (2008), FICO levels didn’t bottom out until late 2009, almost two years after the first recession hit. Hence, people shouldn’t be surprised if it takes a while for credit scores to respond to the economic crisis sparked by the COVID-19 pandemic.
Why Are Credit Scores Going Up?
Staying stable credit scores is one thing; But why are they actually increasing? There are a few reasons to be aware of. First, the government acted en masse to pump more money into the economy. The CARES Act and PPP put more money in the pockets of families and small business owners, making it easier for them to pay their bills and stay on track with their loans. The average number of borrowers who missed a payment actually fell in July compared to previous months. Given that on-time billing accounts for more than a third of the FICO score, it’s easy to see how that would add to creditworthiness. After all, people use this extra money to pay for their credit cards as well. This reduces the average credit utilization and also increases the score.
Do Credit Scores Keep Going Up?
It is impossible to predict the future. When the economy gets back on track, that alone should help keep credit scores rising. Given the uncertainty surrounding another round of stimulus payments and the fact that many people are still struggling to find work, the blessings to creditworthiness may not last. Therefore, everyone should try to do everything possible to pay off their debts and increase their score.
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