Average credit scores down from 2007, but leveling off
Credit card company policies that drastically cut people's available credit over the past two years did their damage to credit scores as expected. Credit Karma, in its trend study, reported today that according to its June Credit Score Climate Report the current average U.S. consumer credit score was 674 in May. That's down almost 20 points since 2007 according to Experian's National Score Index. That index showed that during a six month period between January and June of 2007 the average credit score was 692.As credit card company actions drive credit scores down, banks continue to make it difficult or much more expensive to get credit with scores below 720. In most cases you must have at least 20% to put down on a home to get a mortgage, unless you work with the FHA if your credit score is below 720. Some banks want even higher scores.
The good news in the Credit Karma report is that consumers are improving their debt habits. The average consumer credit card debt decreased by $134, but that's only a drop in the bucket for many of them. The average credit card debt was $6,938. The average home mortgage loan was $206,427 plus the average home equity loan is $54,370. Auto loans averaged another $14,539 and student loans averaged $27,201.
Most consumers saw their credit scores improve or stabilize. Nationally 38% of consumer credit scores went up and 34% had the same credit score in June as in May. That's a slight improvement from May's rate of 32% who saw the same credit score as April. About 28% faced a decrease in their June credit score.
As credit card companies continue to lower available credit and raise interest rates, I don't expect to see major credit score improvements any time soon. Generally the best scores go to people with a credit utilization of about 10% to 20%, which can be very difficult if your allowable balance has been drastically cut.
I've seen postings on Wallet Pop regularly of people with good credit scores having their $10,000 credit line cut to $5,000 or lower. If one was carrying a $1,000 balance on a card with $10,000 credit availability the credit utilization would be 10%. If that credit card company cuts the available credit line to $2,000 that $1,000 balance gives the person a 50% credit utilization and can dramatically impact their credit score.
Hopefully the credit card company shenanigans are nearing an end and we'll truly be able to see people begin to repair their credit scores. Until that happens we can't possible see a recovery from this recession because without access to credit many people can't buy major items such as a home or car.
Lita Epstein has written more than 25 books including The Complete Idiot's Guide to Improving Your Credit Score.
Reader Comments (Page 1 of 1)
7-17-2009 @ 1:49PM
Pat said...
About a year ago my credit was a mess from medical bills and some overspending on my credit card, actually lots of that :). If you've never had that problem you can't believe how it messes up your life. It's hard to buy any big ticket item or even get a good job with bad credit. I found a blog, http://www.fastcreditrepairs.info/ ,that really gave me the information I needed to get my credit and life straightened out. It helped me so well that I was recently able to buy a car and pay the lowest interest rate possible. If you have credit problems you might want to check it out
Reply
7-18-2009 @ 4:59PM
Gary Anderson said...
Credit repair is dubious. I would rather see people who have no other real choice just walk away from these loan sharking banks. I find their lending practices to be usurious and the government is doing nothing to reign them in. They popped the ponzi off balance sheet housing scheme on us and then cried they were going bankrupt. So we taxpayers bailed them out and then they got really cheap loans while continuing to screw us. http://dontpaycreditcards.com
Reply
7-18-2009 @ 4:21PM
Gary Anderson said...
One more point, the leveling off of credit scores is a temporary relief because bank profits may be lower the rest of the year. Ken Lewis, CEO of bank of America said as much. Banks may need to cut credit card limits more because their shoddy underwriting left them with no way to tell who is credit worthy and who is not.
Also, foreclosures are spiking and unemployment is increasing. These are bad signs for credit scores.
Reply
7-18-2009 @ 4:59PM
Gary Anderson said...
One more point, credit ratings could decrease as banks get scared. Ken Lewis, CEO of Bank of America says profits will be lower in the second half of 2009. They could cut more credit lines as they have no idea who is a good credit risk because of shoddy underwriting.
And people will be foreclosed upon more as that number is spiking. Likewise, unemployment will likely be hurt by poor back to school shopping and holiday shopping in the fall.
Reply
7-21-2009 @ 3:27PM
creditscoring.com said...
Experian's National Score Index is 693 (see your link).
If that score was 692 in 2007, then it is up, not down.
Reply
7-22-2009 @ 11:30AM
Donovansdanes said...
Citibank is on the rampage raising their APR rates. I have had two accounts with Citibank for 13 years. NEVER a late payment or even close to carrying a balance near my total available limit. I get a notice from Citibank, stating my APR rates on both my Citi card and my AT&T card were going to go from 12.99% to 29.99%,
I called Citibank, and asked why they were raising my APR rates, and they said it was due to the overall economy, and no fault of mine. Well needless to say, I chose to opt out and closed both accounts in order to retain my lower interest rates. I'd much rather lose a few points on my credit score, as opposed to paying Citibank 29.99% in interest charges every month.
Reply
7-23-2009 @ 6:33AM
RON said...
Hello America I Dont know who you are or what your position is in our country but i do know that togeather we make a difference when we work for a singleness of purpose. I can remember when there was no visa or master card. Hard to imagine every one using cash to make purchases but thats what we did it . If you are one of the millions like myself who use credit cards, we have been seduced by the banks over the years into believing that we cant do without them. ITS NOT YOUR FAULT. The people at the very top of the banking industry do not want anyone having cash in their pockets wallets or purse. Its not the folks at your local branch, their just like us trying to make a living they been hoodwink to.Years ago most of the states had usuary laws Interest rates were capped and anything over 12% was illegal. The banks lobbyed against this and were able to get our lawmakers to change the laws. just recently our congess made some so called credit card reforms What a joke , All they did was give the banks a chance to have some time to be able to change their terms to their own benifits.Now to the point of this note. Today i received a change in terms notice from chase bank. several thing really pissed me off 1- they were raising the int rate 2- they said this would go into effect with my july statement --today is july22 and i have not received the statement.3- if i did not to accept the rate change i should notify them by JUNE 22-09 which was a month ago and finealy 4- They stated that the principle factor they considered in ammemding the account was to maintain profitability on the account. I find this to be outragious . Before i close this account and the 5 other chase accounts i have established over the years, i thought i would compose a letter so they might get a new point of view. Here is the letter , you might want to use it yourself.--------- Gentleman I received your notice today and was truly dismayed. Perhaps you forgot who pays your salery ME your customer. Keeping this account is no longer in my best interest and is no longer profitable to me. If and when you would like the privilege of providing me with a service i can use at a reasonable rate ( 6% and no fees ) please feel free to contact me for consideration of you business. Thank you and please close this account and the other five listed. Successfully yours ---------- Folks the only thing the banks have to sell is Money, One product that they package many ways If we dont borrow they have nothing to sell.. they need a reminder of this like i said earlier before 1966 there was no Visa, M aster card Discover ect. we dont need them. most of the time its a matter of convience my new motto is SAVE AND BUY ONLY WHEN YOU HAVE THE CASH. THANKS FOR READING
Reply
8-11-2009 @ 2:26PM
Joe said...
Hello. I completely agree with Ron's comments. We need to work together and help each other when it comes to overcoming credit card debt.
With that in mind, I want to inform everyone that I am writing a book about avoiding and getting out of credit card debt. I was in debt for several years, but have now been debt-free for a long time.
Reply
8-13-2009 @ 5:25PM
dmd886 said...
Let's not forget about the CREDIT BUREAU's place in all this too--they make more money off of reporting Bad credit than good!
Reply
8-30-2009 @ 2:05PM
Joy Morgan said...
I saw an article on this site entitled (I think) "5 Thing You loose with bad credit". I need a copy of this for a lawsuit I'm in with Discover Card. They say I only lost the ability to borrow money! So, does anyone have this article?
Reply