The average FICO credit score across the U.S. has fallen for a second year in a row.
The latest statistics from Fair Isaac Corp., or FICO, show that the national average FICO credit score fell to 715 (out of 850 possible points) in August. That’s down from 717 last year and 718 in 2023.
FICO says scores are falling due to increased credit card utilization and a rise in missed payments that is partially due to a resumption of student loan delinquency reporting.
Increased credit card utilization means that people with credit cards are using a larger percentage of the total amount of credit that’s available to them — essentially, their credit limits remain the same but they are carrying larger balances.
Generation Z consumers saw their credit scores fall the most of any group. Borrowers between the ages of 18 and 29 saw scores slip by an average of three points.
Student loan debt appears to be a major factor in why this generation is struggling to maintain solid credit scores. Among members of Generation Z, 34% hold student loans. That compares to just 17% of the population overall.
How to improve your own FICO credit score
The first step in improving your credit score is knowing where it stands. If you haven’t checked your FICO score recently, read “7 Ways to Get Your FICO Credit Score for Free.”
To improve any credit score, it also helps to understand how the score is computed.
The most commonly used FICO credit scores are heavily influenced by two factors:
- Payment history, which accounts for 35% of these scores
- Amounts owed, which accounts for 30%
No other factor accounts for more than 10% or 15% of FICO credit scores.
Payment history
Perhaps the most important element of payment history is whether your credit payments have been made on time. Such payments include those for:
- Credit cards, including retail store credit cards
- Installment loans, such as car loans
- Mortgages
Even one late payment can negatively affect you in various ways. On the other hand, a good track record of timely payments will help increase your FICO score.
Amounts owed
“Amounts owed” refers to the amount of outstanding balances on installment loans and revolving accounts such as credit cards.
In the context of revolving accounts, “amounts owed” is sometimes also referred to as “credit utilization ratio.” As we mentioned above, that is a ratio of how much credit is available to you compared with how much of it you are using at a given time.
The weight given to amounts owed is why we often say that you generally should not close accounts of credit cards you are no longer using. From “7 Surprising Things That Damage Your Credit Score“:
“Closing a credit card account you’re not using decreases your available credit, however. That increases your credit utilization ratio, hurting your credit score.”
Another tactic is to pay off your credit card more often, so that your outstanding balance doesn’t get as big, which keeps your credit utilization ratio lower.
For more ways to improve your credit score, check out “7 Ways to Boost Your Credit Score Fast.”
Add a Comment