Todd A Langeness
Regional Sales Manager | NMLS #248695
Branch NMLS #1154232
Posted On October 09, 2018
Nearly ten years into economic recovery, the average American FICO score climbed again, hitting a record high of 704. 2018 marks the eighth year of credit score increases, since the average FICO score hit an all time low of 686 in the wake of the Great Recession. All age brackets saw their average FICO score increase, led by Baby Boomers and Generation Xers.
The good credit score news coincides with Federal Reserve Chair Jerome Powell’s positive economic report last month. Unemployment is hovering a 50-year low and consumer confidence is peaking at a 17-year high. As the economy continues to strengthen, and consumers borrow and repay loans responsibly, credit scores will likely continue to trend upward.
FICO scores range from 350 to 850 and are comprised of five components: payment history (35%), total debt (30%), length of credit history (15%), credit mix (10%), and new credit (10%). The FICO credit score is the most widely accepted credit score used by banks and lenders to determine a loan applicant’s ability to repay their loan. Free credit reporting services are available online, but free estimates do not always match the official FICO score.
Bloomberg reports only 23% of consumers fall below 550 credit scores, down from last year’s 25.8% ratio. 22% of consumers have FICO scores that have surpassed the 800 threshold, up from 20.6% last year. Generationally, older Americans led the way with the highest average FICO scores. Consumers aged 18-29years-old had an average score of 659, consumers in their 30s upped the average score to 677, consumers in their 40s averaged 690, consumers in their 50s averaged 713, and consumers over 60 topped the charts with an average score of 747. Since length of credit history is one of the five factors used to calculate the FICO scores, older Americans benefit from their longer credit histories. Younger Americans, especially those in their 20s and 30s, are also grappling with substantial student debt, which increases their total debt.
Most mortgage lenders accept a minimum score of 680 for conventional financing and 620 for government-sponsored loans, like the FHA loan. Minimum scores vary from lender to lender and depend on other financial circumstances. Better credit scores will typically translate into a lower interest rate for the borrower. A variety of mortgage programs are available to cater to borrowers with a range of credit scores. If you have any questions about your credit score and what type of loan you would qualify for, consider meeting with a local loan officer.