Consumer debt is rising, and now credit scores have declined.
The national average FICO credit score dropped to 715 from 717, according to a recent report from FICO, developer of one of the scores most widely used by lenders. FICO scores range between 300 and 850.
Amid high interest rates and rising debt loads, the share of consumers who fell behind on their payments jumped over the past year, FICO found. Also, the resumption of federal student loan delinquency reporting on consumers' credit was a significant contributing factor, the report said.
"Those are now being reported for the first time since March 2020," said Tommy Lee, senior director of scores and predictive analytics at FICO. "This is really driving the increase in severe delinquencies."
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The effects of student loan delinquency reporting
The Federal Reserve Bank of New York cautioned in a March report that student loan borrowers who are late on their payments would experience "significant drops" in their credit scores.
Initially, those borrowers benefitted from the pandemic-era forbearance on federal student loans, which marked all delinquent loans as current. Median credit scores for student loan borrowers increased by 11 points between the end of 2019 to the end of 2020, the Fed researchers found. However, that relief period officially ended on Sept. 30, 2024.
"We expect to see more than nine million student loan borrowers face substantial declines in credit standing over the first quarter of 2025," the Fed researchers wrote in the blog post last month.
"Although some of these borrowers may be able to cure their delinquencies," the Fed researchers said, "the damage to their credit standing will have already been done and will remain on their credit reports for seven years."
Lower credit scores could result in reduced credit limits, higher interest rates for new loans and overall lower credit access, the researchers also said.
During the 2007-2010 housing crisis, average nationwide credit scores fell to 686 due to a surge in foreclosures. They subsequently ticked higher until the Covid-19 pandemic, when government stimulus programs and a spike in household saving helped boost scores to a historic high of 718 in 2023.
However, last year, FICO scores notched their first decline in over a decade, dropping to 717 in 2024, when rising credit card balances and an uptick in missed payments started to take a toll.
This year, scores fell even further as severe delinquencies, or 90-day past-due missed payments, surpassed pre-pandemic levels for the first time.
The consequences of a lower credit score
In general, the higher your credit score, the better off you are when it comes to getting a loan. Lenders are more likely to approve you for loans when you have a higher credit score, or offer you a better rate. Alternatively, borrowers with lower scores are typically charged more in interest, if they are approved for a loan at all.
In fact, increasing your credit score to very good (740 to 799) from fair (580 to 669) could save you more than $39,000 over the lifetime of your balances, a recent analysis by LendingTree found — with the largest impact from lower mortgage costs, followed by preferred rates on credit cards, auto loans and personal loans.
Some of the best ways to improve your credit score come down to paying your bills on time every month and keeping your utilization rate, or the ratio of debt to total credit, below 30% to limit the effect that high balances can have, FICO's Lee said.
A good score generally is above 670, a very good score is over 740 and anything above 800 is considered exceptional.
An average score of 715 by FICO measurements means most lenders will consider your creditworthiness "good" and are more likely to extend lower rates.
"There are still many consumers that are managing their payments very well," Lee said. "On the other hand, the decline [in average credit scores] does indicate there are some consumers being impacted by the current economy."
