Recently, the average FICO credit score has reached a record 700. This is the highest score that has been achieved in the history of FICO credit score reporting which started 12 years ago. The system uses a scale ranging from 300-850- the former indicates a poor credit while the latter denotes an excellent credit. Your personal credit score not only determines your credit worthiness but also, this is what most traditional lenders will use to determine how much you can borrow and the loan terms.
According to FICO’s vice president, Ethan Dornhelm, there are some factors that have contributed to this upward trend. The strong economy with relatively low unemployment rates and the increase in home value are major factors that have supported the recovery of individuals adversely affected by the recession. FICO started tracking scores in 2005 and they have remained in the “good credit” bracket which is 670-739. In 2005, the score was 688 and there were constant fluctuations during the recession period as well as after recession. But from October 2013, the scores have experienced an upward trend from 690.
Although numbers are considered to be more appropriate, players in the lending sector can always decide what qualifies as good credit. An upward trend of the national average score is an indicator that a huge proportion of the population is getting better. It also means that most people are entering into the next bracket of “very good credit score”. Although different scoring models have a different ranking, 740 is the start of “very good” on the FICO scoring model.
The trend has been credited to consumers who have been taking active control of their financial profile. With constant efforts to arm consumers with financial knowledge, more people are acting to improve their scores. Besides the rise in average scores, there has been an increase of individuals with super prime scores. Normally, these start at 800 points and there are more people with high scores than those with scores below 600.
A huge proportion of the population experienced financial difficulties during the recession. Consequently, they made decisions that led to damaged credit scores. Most people couldn’t make timely payments on their loans, carried credit cards with huge balances and overestimated their capacity to handle credit. But over the years, there has been a positive growth in the credit sector and more people have been empowered. Today, most people are well informed about credits and they can take particular actions towards improvements.
A change in the credit bureau policy
A significant percentage of the American population has seen an improvement in their credit scores thanks to an implementation of a policy touching on tax liens and civil court judgments. In the past, the two factors have had a negative impact on credit scores. However, three major credit bureaus have scraped off more than half of the tax liens as well as civil judgments on the consumer financial profiles.
If you are wondering why all this is happening, well, it’s because the data held against most consumers is not correct. In a lawsuit against attorneys, it is argued that there has been a massive mislinking of financial data across the US. It is reported that another person’s details can easily be linked to your profile leading to unnecessary credit reduction. To illustrate, if two people are sharing the same name but one has a bad credit profile, the same effect can be transferred to the other person unfairly.
The lawsuit was also specific on the difficulty of rectifying the existing errors. Therefore, the new agreement requires the credit bureaus to exclude all tax liens and civil debts that do not include sufficient information. In addition, the data will be re-evaluated after every six months to ensure consistency and accuracy.
Most Americans will see a significant rise in their credit scores which in turn improves the chances of getting credit cards; Realisiticloans.com gives personal loans and mortgage. While most people get a boost of about 10-20 points, there are some getting over 40 points.
Nevertheless, lenders are concerned because they depend on credit agencies to assess their clients. This means that there are some credit issues that will not be reported to lenders. The main problem is that people could appear to be more credit worthy than they really are, and get loans that they can’t afford to service.
While the increased number of defaulters could induce some changes to the lending industry, it is minute to cause long-term effects.
If you are among the people with increased credit scores, this is a good opportunity to apply for the long waited loan. But don’t be deceived, if you’ve had issues of tax liens on your financial profile, it needs to be addressed even if it doesn’t reflect on the records. In addition, you need to continue practicing responsible borrowing to maintain a good financial record.