Despite a rebounding economy, the average U.S. consumer credit score has dropped for the first time in a decade. The score dipped from 718 in July to 717 in October, according to a report from Fair Isaac Corp., the creator of the FICO credit score.
The decline is attributed to consumers taking on more debt and borrowers missing more payments. In 2023, credit card delinquencies rose by more than 50%, while total consumer debt ballooned to $17.5 trillion, according to the New York Federal Reserve.
“There are several factors at play here,” said Ben Danner, Senior Analyst for Credit and Commercial at Javelin Strategy & Research. “Consumers are grappling with high rates of inflation causing a strain on the household budget. The personal savings rate has been very low, meaning that consumers are not retaining their disposable income. These forces have contributed to a rising delinquency rate and net charge-off rate across credit card portfolios, which certainly impacts credit scores.”
Credit Card Debt Continues to Rise
The drop in credit scores stems from various factors, but perhaps foremost is growing credit card usage. The percentage of credit cardholders carrying month-to-month debt increased to 49% from 39% in 2021, according to Bankrate.com. Separate data from Clever Real Estate found that nearly half of Americans were relying heavily on their credit cards for essentials like food, rent, and utilities.
Despite the average credit card rate hitting 19.6%, 43% of those with credit card debt say they don’t know their interest rates. With cash-back programs and reward points driving many borrowers credit decisions, their inattention to interest rates is likely another cause of excessive debt.
In January, non-mortgage interest payments climbed to an annual rate of $573.4 billion. That’s the highest on record even after adjusting for inflation. U.S. households are now paying roughly as much interest on other kinds of debt as they are on their mortgages, according to the Bureau of Economic Analysis.
A Plunge in Savings
Earlier this year, the St. Louis Fed reported that Americans’ savings rate had dipped to 3.8%, down from the near 9% average over the previous decade. The pandemic-induced stockpile of cash many people amassed has now been nearly depleted. In fact, evidence suggests that Covid was good for most people’s credit scores.
As a result, an October 2023 Bankrate survey found that nearly half of American adults have either less savings or no savings compared to a year ago. More than a third find themselves with more credit card debt than cash reserves.