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Americans’ credit scores are on the rise, Experian study shows

2018 marks the largest year-over-year increase since the recession

Summary

Experian’s newest study has uncovered some good news for the credit card industry and consumers alike. Credit scores are on the rise and delinquencies are on the wane.

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U.S. consumers’ credit scores are improving in the wake of the recession, according to a new report from Experian.

The credit bureau on May 20 released key findings from its annual State of Credit report, which showed that although U.S. consumers’  credit scores aren’t as high as when the recession began, they experienced the largest year-over-year increase in 2018 since 2008.

The average VantageScore in 2018 was 680, compared to 685 in 2008 and 675 in 2017. Additionally, the average number of cards consumers carry slightly decreased year-over-year (to 3.04 from 3.06 in 2017), and average credit card balances edged up by $152 to $6,506 in 2018. In 2008, consumers had higher average credit card balances (an average of $7,101) and more cards (3.4) than in 2018.

In addition, average delinquencies across the board decreased.

“We’re continuing to see the positive effects of economic recovery, through improved credit scores and lower delinquency rates,” said Michele Raneri, vice president of analytics and business development at Experian, in a news release.

See related:  Poll: 56% of balance-carrying cardholders have had debt for at least a year

Study results by age groups

Raneri also explained that the post-recession upward trend in average scores is due to younger consumers carrying less debt and using credit responsibly.

“Over the past 10 years, those 18 to 21 increased their credit scores by 23 points on average compared with those 18 to 21 10 years ago,” Raneri said.

Perhaps the most compelling information from the Experian study is the 2008-versus-2018 comparison between different age groups’ credit behaviors.

Here’s what Experian found:

  • 22-35-year-olds had the second-largest average credit score increase since 2008, improving from 629 to 644. This group also lowered its credit card balances, from an average of $5,582 in 2008 to $4,593 in 2018.
  • 18-21-year-olds increased their average credit card balances from $2,056 in 2008 to $2,259 in 2018 – and increased their credit scores more than any other group, from 616 in 2008 to 639 in 2018 (a score considered near-prime).
  • While consumers aged 72 and older had higher credit scores than everyone else, their average score plummeted from 772 in 2008 to 732 in 2018. In addition, the oldest group had the largest uptick in credit card balances, from $3,936 in 2008 to $4,703 in 2018.
  • The 51-71-year-old age group carried more credit cards in 2018 than any other group, despite going from 4.02 in 2008 to 3.48 in 2018. And this group’s average credit card balance went from $8,127 in 2008 to $7,637 in 2018.
  • The 36-50-year-old age group had higher balances on its credit cards (the figure went from $8,897 in 2008 to $8,012 in 2018) and retail cards (which went from $2,032 in 2008 to $2,192 in 2018) than any other group.

Credit scores: Highest- and lowest-ranking states

The study also ranked states by their average 2018 credit scores.

The five top-ranking states in the country were Minnesota, South Dakota, Vermont, New Hampshire and Massachusetts, with credit scores of 703 or greater.

The five lowest-ranking states were Mississippi, Louisiana, Nevada, Georgia and Texas, with scores of 659 or lower.

See related:  10 tips to improve your credit score in 2019

Delinquencies well below pre-recession levels

Experian’s study uncovered some surprising facts about consumers’ credit behaviors in the last decade.

One of the most encouraging is that average delinquencies across the board — 30, 60 and 90-plus days past due — have all decreased since just before the recession, by 1.5 percent, 1 percent and 0.4 percent, respectively.

And that’s good news for credit card companies and consumers alike.

Americans and debt

“In general, Americans are doing a good job managing their debts, thanks in large part to a 10-year economic expansion that has included substantial wage growth in recent years, Ted Rossman, industry analyst at CreditCards.com, said.

As an example, Rossman cited the fact that the household debt-to-income ratio recently hit its lowest point since the Fed began tracking it in 1980.

But, he conceded, many households are still struggling.

A recent CreditCards.com poll revealed 25 percent of U.S. adults with debt don’t think they will ever get out of it, up from 9 percent in 2013.

And 56 percent of people with credit card debt have been in debt for more than a year, 37 percent have been in debt for at least two years and 7 percent can’t even recall the last time they didn’t have credit card debt.

Plus, credit card delinquencies have been rising, particularly among millennials, Rossman said.

Interest rates have been rising, too — the average credit card rate is now a record-high 17.73 percent.

Credit card debt can be harmful to your finances, so do whatever you can to make your personal credit card interest rate 0 percent, Rossman advised.

“Pay your bills in full if at all possible. Consider taking on a side hustle if necessary, sell some things around the house or cut expenses,” he suggested. “Also, apply for a 0 percent balance transfer card. These offer up to 21 months with no interest.”

Experian aims to help people manage their debt responsibly, and studies like this one are designed to make them more aware of their credit profiles.

“Understanding the factors that influence their overall credit profile can help consumers lead financially empowered lives,” said Rod Griffin, director of consumer education and awareness at Experian, in a news release.

 

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Published: May 20, 2019

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