U.S. Credit Scores Decline for Second Year as Financial Strains Mount
For the second consecutive year, the national average FICO credit score has fallen, reversing a decade-long upward trend. According to a recent FICO report, the average credit score now stands at 715, down from 717 in 2024 and 718 in 2023. FICO scores range from 300 to 850 and are widely used by lenders to assess borrower risk.
Economic Pressures Drive Increased Debt and Missed Payments
Persistently high inflation and elevated interest rates have strained many Americans’ finances, leading to rising credit card balances and a growing number of missed payments. These factors have collectively exerted downward pressure on credit scores nationwide.
“Millions of Americans are struggling mightily in the face of stubborn inflation, high interest rates, a difficult job market and overall economic uncertainty,” said Matt Schulz, chief credit analyst at LendingTree. “Tough times often force tough decisions.”
Student Loan Delinquencies Major Contributor to Score Declines
A key factor accelerating the drop in credit scores has been the reinstatement of federal student loan delinquency reporting. During the pandemic, federal forbearance policies marked delinquent student loans as current, temporarily boosting median credit scores for student borrowers by 11 points from late 2019 to 2020, according to Federal Reserve Bank of New York research.
However, this relief ended on September 30, 2024, leading to a sharp rise in reported student loan delinquencies. FICO’s report highlights that recent, severe delinquency rates on student loans have spiked since the reporting resumed. Tommy Lee, senior director of scores and predictive analytics at FICO, warns that changes to income-driven repayment availability may further increase delinquencies in coming months.
Polarized Credit Score Distribution Reflects Uneven Economic Recovery
The ongoing “K”-shaped economic recovery has produced divergent outcomes among consumers. While many face financial stress, others have benefited from strong stock market performance and rising home values, leading to a wider spread in credit scores. FICO notes that more consumers now fall into both the highest and lowest score brackets.
“While the average score has gone down, there are consumers who are benefiting from all-time highs in the stock market and appreciating home prices,” Lee said.
Strategies to Improve Credit Scores
Lower credit scores can result in reduced credit limits, higher interest rates, and restricted access to new credit. Experts emphasize that FICO scores are dynamic and can improve with responsible credit behavior.
Key recommendations include making timely payments, limiting new credit applications, and maintaining credit utilization below 30%. According to LendingTree analysis, raising a credit score from the fair range (580–669) to very good (740–799) can save borrowers more than $39,000 over the life of their debt, primarily through lower mortgage rates, followed by preferred rates on other loans.
“There’s very little in life that’s more expensive than having crummy credit,” Schulz noted. “It can cost you tens of thousands of dollars over the years in fees and interest.”
FinOracleAI — Market View
The decline in average credit scores signals increasing financial stress among U.S. consumers, driven by elevated debt burdens and resumed student loan delinquency reporting. This trend may constrain consumer borrowing and spending in the short term, potentially dampening economic growth. However, the polarization of credit scores suggests that wealthier segments remain financially resilient, which could moderate broader credit market impacts. Key risks include worsening student loan defaults and persistent inflationary pressures. Market participants should monitor upcoming consumer debt data and federal student loan policy changes for further credit risk signals.
Impact: negative
