3 Signs Consumers Are Wobbling in Today’s Economy

Even in a time of surging inflation, American credit scores appear to be holding steady. That’s according to the latest data from FICO, a data analytics company that produces some of the most widely used credit scores.

However, that score stability masks a few unsettling trends in consumer behavior.

After seeing a “substantial increase” in the first year of the COVID-19 pandemic, the average FICO credit score is now exactly the same as it was a year ago — 716.

While that might seem like cause for celebration, FICO notes that there has been some “modest degradation” in a few key credit score metrics. Following are the ways in which consumer behavior is flashing warning signs.

1. A slight uptick in missed payments

Higher prices inevitably are taking their toll on household finances, and more consumers are missing payments now.

Missed payments on bank cards and auto loans were up about 1% as of April 2022, while missed payment rates on mortgage loans have not changed.

FICO notes that stimulus and “payment accommodation” programs helped keep consumers afloat through the early part of the pandemic. But that is changing:

“Government stimulus programs have been ramping down and payment accommodations reported in the credit bureau data have largely reverted to their pre-pandemic levels. For some consumers, this has caused a financial strain leading to missed payments.”

2. Slightly higher debt levels

Debt levels also are increasing.

Although debt burdens remain below pre-pandemic levels, the average credit card utilization stands at 31%, up 1% year over year, according to FICO’s most recent data.

FICO notes that Federal Reserve data shows revolving credit increasing at an annual rate of 19.6% in April 2022. According to the company:

“This suggests that consumers are not only obtaining new credit, but also using more of it, whether due to rising inflation rates, or simply due to having more opportunities to spend on discretionary items such as restaurant, retail, and travel during this period than earlier in pandemic.”

3. More consumers getting new credit

Activity surrounding new credit has jumped up to pre-pandemic levels, with 47.6% of the population having opened at least one new account in the 12 months before April. That’s up from 44.8% who had at least one new account on file in April 2021, according to FICO.

Perhaps this is just a return to normalcy. But it also could indicate that some folks feel pressured to get new credit cards just to help make ends meet as they struggle to cope with inflation.

How to get your credit score for free

Your credit score touches many areas of your life. A higher score gets you better loan terms and might even improve your odds of landing a job.

Knowing your score is the first step to getting a grip on your financial standing. Traditionally, you have had to pay to access your score, but if you use a little ingenuity, that no longer is the case.

For more, check out “7 Ways to Get Your FICO Credit Score for Free.”