Credit Scores Are on the Rise — Are You Keeping Up?

The average FICO score went up 4 points from 2013 to 2014, and at 694, that average is the highest on record, according to the credit scoring giant. A drop in credit card debt seems to be one of the biggest drivers behind better FICO scores.

“We saw a tremendous amount of deleveraging during and after the recession,” said Jeff Scott, a spokesman for FICO. “People are relying less on credit and are ringing up less debt on their credit cards.”

Credit utilization — how much you use of your available credit — is a huge part of what determines your FICO score, so spending less on your credit cards is likely to improve your scores.

Since 2010, the average FICO score has increased 7 points, from 687 in October 2010 to 694 in October 2014. In that time, credit has been difficult to get for consumers with less-than-stellar credit. It could be that those who have good credit had the opportunity to improve it further, and perhaps some people with poor credit fell off the grid — a consumer needs to have credit activity in the past six months to have a FICO score.

“Lenders are being a little bit more cautious with their lending decisions now, even several years after the recession ended,” Scott said. “Lending decisions are still more cautious than they were in the years immediately prior to the recession — that would help contribute to higher FICO scores.”

Though credit scores dipped during the recession, they’re historically high.

“We have data available to us to 2005, and that 694 average is the highest it’s ever been, even going back to the years before the recession,” Scott said. He noted that the data from 2010 on was based on the FICO 8 model, meaning the scores in 2005 and 2014 aren’t directly comparable. FICO 8 uses a scale of 300 to 850, putting all the averages from recent years on the lower end of what’s generally considered a good score.

Whether the 4-point change since last year is a notable is a matter of opinion. The fact that the average has gone up nationwide generally indicates people are doing a better job of managing debt, but there’s a lot of room for interpretation in an average.

“FICO doesn’t typically speak in terms of statistical significance,” Scott said. “Four points is important to some people, and unimportant to others.” The average is based on scores generated from data on Experian credit reports, meaning this is only one of many ways of looking at consumer credit performance.

In general, part of the improvement may be a result of increasing consumer knowledge about credit scores. Free credit scores and information about how credit scores are calculated have become more widely available in the past several years, allowing consumers to better gauge how their habits affect their credit, and by extension, their ability to access loans at affordable interest rates.

“Millions of people, I think it’s safe to say, are taking a more proactive role in managing their credit and they’re seeing the FICO score as a tool they can use themselves,” Scott said, adding that such consumer empowerment may also be driving up average FICO scores.

Once you know how your credit standing is affected by your daily decisions, it’s much easier to act in the best interest of your credit. To see where you stand, you can get a free credit report summary on Credit.com, which includes two free credit scores and updates every 14 days.