Average credit scores continue to climb, study finds

Consumers managing their rising debt load well, credit bureau says

Fred O. Williams
Senior Reporter
Expert on consumer credit laws and regulations.

State of Credit report

Consumers managed to improve their credit scores overall in 2017, despite rising levels of debt.

That’s according to the annual State of Credit report from Experian, one of the big three credit bureaus.

“From a credit standpoint, people seem to be doing better at managing their debt,” said Rod Griffin, Experian director of public education.

The average U.S. VantageScore credit score rose to 675 last year, from 673 in 2016, the report said. The State of Credit analysis looks at credit reports – minus people’s names and identifying details – about the middle of the year. The 2017 averages are based on data from 15 million reports nationwide.

The improving credit profile “is not zooming upward,” Griffin said, “but two points is not insignificant either.” The scores tend to rise in tandem with improvements in the economy, such as rising economic growth and falling unemployment.

Credit scores have been gradually recovering since the Great Recession of 2008-09. The 2017 level puts the average VantageScore within four points of its pre-recession level in 2007, Experian said.

Average debt, credit score figures from Experian's 'State of Credit' report:

  • Average credit score: 675
  • Average number of credit cards: 3.1
  • Average balance on credit cards: $6,354
  • Average number of retail cards: 2.5
  • Average balance on retail cards: $1,841
  • Average mortgage debt: $201,811
  • Average nonmortgage debt: $24,706
  • Average score for silent generation: 729
  • Average score for baby boomers: 703
  • Average Generation X: 658
  • Average Generation Y: 638
  • Average Generation Z: 634
"From a credit standpoint, people seem to be doing better at managing their debt."

The Experian study uses VantageScore, which is designed by the major credit bureaus, and is an alternative to the better-known FICO score. Both measure people’s credit risk by looking at their debt levels, repayment history, recent credit applications and other financial factors. FICO scores have also been steadily rising since October 2013. Last year, the average FICO score reached 700 for the first time.

While rising credit scores indicate stronger household finances, Griffin cautioned against interpreting the scores as a direct comparison of consumers’ economic well-being over the years. Credit scores “are looking at one small piece of the economic puzzle,” he said.

Average scores would tend to rise overall as the wave of foreclosures and bankruptcies caused by the recession recede further into the past, reducing their weight on people’s current scores.

How debt averages out

The average consumer’s balance on bank-issued credit cards was $6,354 for 2017. The average number of bank cards was 3.1. In 2016, the average balance was $6,188 on a comparable basis, Experian said. The balance analysis includes only active cards, the company said.

As for retail cards, people carried an average of 2.5 of them in 2017, with average balances of $1,841, up from $1,768 in 2016 on a comparable basis.

According to the Federal Reserve, card balances rose about $52 billion overall during the period from mid-2016 to mid-2017, or about 6 percent. The Fed’s G.19 report of revolving debt, as reported by banks, shows balances have surpassed their pre-recession peak, and recently posted a new all-time record of more than $1.02 trillion in November, on a seasonally adjusted basis. The preliminary figure is subject to revision.

"The trend line that we are seeing is quite promising. All of the factors point toward a good year for credit in 2018."

Outlook for 2018

Will consumers continue their winning streak in 2018, with debt levels rising and interest rates going up as well?

With employment levels rising and economic growth projected to continue, the foundation for consumers’ finances should remain strong, Experian said.

“The trend line that we are seeing is quite promising,” Michele Raneri, Experian vice president of analytics and new business development, said in a statement. “All of the factors point toward a good year for credit in 2018.”

While debt levels are up, consumers’ ability to repay is stronger than in past year, according to Federal Reserve figures. Household financial obligations as a percent of disposable income stood at 15.83 percent in 2017’s third quarter. That’s a relatively low debt burden historically, and substantially below the pre-recession peak of 18.1 percent.

Meanwhile, banks are throttling back on new loans and credit lines as consumer debts rise, reducing their risk profile, according to senior bank loan officers.

Scores not evenly spread

Looking at different age groups, Generation Xers, born between 1967 and 1981, had had the highest average credit card balances, at $7,750. They were followed by baby boomers (1947-1966) with $7,550; silent generation (before 1946), $4,613; Generation Y (1982-1995), $4,315; and Generation Z (after 1996), $2,047.

The average balance figures aren’t the same as a typical debt burden, Experian warned. The average includes some consumers who have a relatively large balance that they’re able to pay off every month. Other cardholders may have a smaller balance, but struggle to make monthly payments.

While Experian found that credit scores overall were up, some areas of the country and some demographic slices of the population did better than others.

A big difference between generations is the utilization rate on credit cards, or how much of the available balance is absorbed by spending, Griffin said. Utilization rates are higher for younger people, which holds back their credit scores, he said, although it is not necessarily a sign of poor debt management.

“It’s about the life cycle – I think it’s related to youth, education and kids,” Griffin said. Families starting out naturally spend more – and lean more on their credit – than those further along in life. Silent generation seniors had the best average credit score, at 729. Generation Z, with their short credit history, had the lowest average score at 634.

A big difference between generations is the utilization rate on credit cards – higher for younger people, which holds back their credit scores, although it is not necessarily a sign of poor debt management.

Where the scores are

As in past years, some northern states came out on top of the credit score rankings, while parts of the deep South came in last. Minnesota, Vermont, New Hampshire and South Dakota posted the best average credit scores, while the lowest scores hit Mississippi, Louisiana, Georgia and Alabama.

“We know people in Minnesota are managing their credit really well – as to why, it’s hard to say,” Griffin said. “It may be related to the job market; it may be related to education.”

Areas with a better economy and education levels tend to do better managing their finances; but attitudes toward money may play a role also, he said.

“Culturally there’s maybe a different perspective on banking and borrowing,” he said.

See related: Average credit score climbs in Experian study, Survey: Who is most likely to carry credit card debt?


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Updated: 09-24-2018