According to Fair Isaac Corp., the average FICO credit score has improved by eight points to 716 since the start of the pandemic. Early in the epidemic, pandemic-related assistance initiatives and a drop in consumer expenditure may have helped Americans improve their credit histories by paying off existing debts and limiting new debt.
Consumers who started with a credit score of less than 600 are mostly responsible for the rise. A FICO score of 670 to 739 is regarded as good, but anything below 580 is considered poor.
In April 2020, consumers in that group had an average credit score of 581. After a year, those scores had risen to an average of 601 points.
However, experts caution that any gains might be wiped out if inflation rises, which is presently at a 31-year high. Groceries, gasoline, and other goods are becoming more expensive in the United States. This could lead to the additional debt being taken on by consumers.
Still, according to William Lansing, CEO of FICO, “inflation by itself… is not likely to have a substantial influence on the total national credit score.” “However, if prices surpass income and consumers end up taking on more debt, their FICO credit score would undoubtedly suffer.” There’s also a seasonal element: people tend to take on more debt in the fourth quarter, around the holidays. As a result, we may observe a slight decrease.”
Despite dismal labor market conditions throughout the epidemic, the Consumer Financial Protection Bureau stated earlier this fall that tenants’ financial situations were improving. During the epidemic, renters’ credit scores improved by 16 points. However, those scores are still significantly lower than those of homeowners.
Tenants may soon benefit: Freddie Mac has launched a new program to assist renters in building credit profiles by allowing multifamily property owners or managers to report on-time rental payments to the three major credit agencies. Only about 10% of renters have their on-time rental payment history recorded in their credit ratings at this time. This could make it difficult for some people to obtain credit or qualify for the best rates.