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As consumers continue to face rising prices and interest rates, credit scores – the three-digit numbers that lenders use to determine your responsibility with your money – are taking a hit across the country.
FICO, a leading data analytics and credit scoring company, recently released a report on the latest credit score data for October 2023. The national average FICO score fell to 717 from 718 in July, marking the first time in 2023 that credit scores have declined. Ten years.
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“The decline in average scores is a notable milestone,” Ethan Dornhelm, vice president of scores and predictive analytics at FICO, told Bloomberg.
“It’s not a flashing red light, but it’s certainly a yellow light.”
What is triggering the decline?
FICO’s report states that borrowers’ missed payments and increased consumer debt levels are causing credit scores to decline. Your credit score is typically determined by factors such as whether you make your credit card payments on time and whether you maintain a low credit utilization ratio.
As of October 2023, data shows that more than 18% of the population was 30 days or more late on one or more credit account payments in the past year, an increase of 4% compared to April. I am.
Consumer debt is also higher than before the coronavirus pandemic, with credit card balances exceeding $1 trillion as more people rely on credit cards to make ends meet.
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“The clear cumulative impact of rising interest rates, rising consumer prices, and economic uncertainty has led to greater reliance on credit cards, especially for day-to-day expenses,” said Kang Alkali, FICO’s senior director of scores and predictive analytics. “This places an economic burden on consumers who are still living in the country,” he said.
Meanwhile, new credit activity, which can often offset some of the impact of debt growth and delinquencies, has also slowed. Akari suggested that this may be because mortgage originations plummeted during this period as prices and mortgage rates remained high and consumers remained on the sidelines.
Still, experts say a one-point drop in your credit score isn’t cause for alarm.
Gus Faucher, PNC’s chief economist, told CNN that FICO scores have declined given that they reached a record high in 2022, when employment growth was strong and consumers had more money. “It’s not really a cause for concern,” he said.
“The overall outlook for consumer credit quality and consumer spending growth remains very strong,” Faucher added.
4 ways to relieve pain
For people dealing with a cost-of-living crisis and struggling to pay their credit card bills, there are ways to ease the financial burden.
Call your credit card issuer and try negotiating a lower interest rate on your credit card. If you have a history of making on-time payments and a good credit score, you’re more likely to secure a lower interest rate. However, it may also be helpful to mention that this will help you pay off your credit card debt.
If you have multiple credit cards or loans and are finding it difficult to keep track of them, you may want to consider rolling them into a low-interest debt consolidation loan. You can also consider transferring your credit card debt to a 0% APR introductory credit card, but be sure you understand the risks.
Lowering your credit utilization ratio in the face of rising prices can be difficult, but creating and sticking to a solid budget can help you control costs. Creating an income and expense spreadsheet will help you keep track of where your money goes.
Then look for easy ways to increase your income, like renting out a spare room in your house or incorporating the spare change you earn from everyday purchases into a smart investment portfolio.
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This article is for information only and should not be construed as advice. PROVIDED WITHOUT WARRANTY OF ANY KIND.
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