The average U.S. consumer credit score climbed 4 points over the past year despite higher debt levels – including a big jump in credit card debt – according to a study released by Experian.
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The credit bureau’s annual State of Credit report put the average VantageScore credit score at 673, up from 669 last year. The measurement is drawn from a statistical sampling of anonymized credit reports during the second quarter.
“We are seeing the positive effects of economic recovery,” Experian Vice President of Analytics Michele Raneri said. “People are paying their bills better than before – that’s a huge component of the score.”Growing household income and employment levels helped families keep up with their current bills while continuing to heal the financial scars left by the Great Recession.
The average VantageScore – the formula designed by the big three credit bureaus – is improving as late payments decline, Experian said. The average number of late payments in the June billing cycle fell to 0.35 per consumer, from 0.4.
Meanwhile, the average balance on bankcards climbed to $5,551, up strongly from $4,404 the year before. However, consumers’ use of their available credit, their “utilization rate,” remained at its previous average of 30 percent, as borrowers saw their credit lines increase.
The impact of the recession, which left black marks on millions of people’s credit reports, is declining as recession-era delinquencies, write-offs and foreclosures fade further into the past, Raneri said. It takes seven years for a default to be erased from credit files, and 10 years for bankruptcy.
“We’re getting really close to attaining the credit score of 2007,” she said. The pre-recession mark of 679 is just six points away, putting it within reach next year. VantageScores range from 300 to 850, the same scale used by the better-known FICO score.
The older the better
Demographically, the more mature slices of the consumer population earned higher scores than younger ones. The Silent Generation – those aged 70 and up, had the highest average score at 730. They were followed by baby boomers, ages 50 to 69, with an average score of 700; Generation X, ages 35 to 49, 655; Generation Y, ages 21 to 34, 634; and Generation Z, ages 20 or under, at 631.
The upper tiers of the age groups benefit from much lower mortgage debt than other groups, as well as lower bank card debt and an enviably low credit utilization rate of 16 percent – about half the average. They’ve also had longer to let the mistakes of their youth fade from their credit records.
Only 16 percent of the Silent Generation had a delinquency longer than 90 days on their credit file, half the average rate, the report said. Delinquencies include repossessions, foreclosures, debts in collection and charged-off card balances.
Younger people are also at a disadvantage because they’ve had less time to build up a record of on-time payments than older consumers.
|DIFFERENT GENERATIONS, DIFFERENT CREDIT PROFILES|
|Number of credit cards||1.91||2.93||2.56||2.02||1.29||2.35|
|Average balance on credit cards||$3,780||$6,889||$6,866||$3,542||$1,682||$5,551|
|Revolving credit utilization||16%||29%||37%||36%||36%||30%|
|Average number of retail cards||1.12||1.82||1.65||1.34||1.24||1.51|
Where the scores are
Almost all of the approximately 200 cities examined saw their scores rise from 2015 levels – but some places did better than others. Las Vegas boosted its average score by 9 points, to 645, as late payments and 90-day delinquencies fell. The improvement pulled the city from the list of the bottom 10 scores. Another escapee from the list was Jackson, Mississippi, where the average score climbed seven points to 642.
While a few cities changed in the rankings, the geographic pattern of scores remained similar to the map seen in past years. Cities in the northern Midwest dominated the top of the list, with the 10 best scores located in Minnesota, Wisconsin and the Dakotas. The cities with the lowest credit scores remained concentrated in the South – Mississippi, Georgia, Louisiana and Texas accounted for eight of the bottom 10.
Mankato, Minnesota, repeated as the No. 1 scoring city, with 708. Greenwood, Mississippi, again brought up last place, at 622, despite a 10-point improvement.
“Year after year, this study has shown that lower-ranked cities have struggled to improve their credit standing,” Experian Director of Public Education Rod Griffin said in a statement. Experian said it will donate 45,000 half-hour credit improvement sessions to consumers in low-scoring areas, through nonprofit credit counseling agencies.
While scores are often low in low-income areas, that’s not necessarily the case, Raneri said. “There just seems to be a culture of some geographies having slower payments,” she said. That’s where better consumer education can make a difference to modify economic behavior and habits. “It does mean there’s room for improvement.”