US Credit Quality Continues to Inch Forward
We recently crunched the data from the latest national distribution of FICO® Scores. Our findings reveal a continued slow but steady improvement in US consumer credit quality.
Specifically, we continue to see that the number of consumers in the lowest score ranges is shrinking. In fact, it’s hit its lowest point since peaking in October 2009. In October 2013, 24.0% of consumers scored less than 600, down from 24.4% in October 2012. We’ve almost reached our pre-recession benchmark of 23.8% in October 2007.
The score movement table below reinforces this general positive shift in credit health. The table shows how the scores of different pockets of consumers migrated between October 2012 and October 2013. In general, more consumers are moving to higher score intervals than to lower score intervals. Many consumers, however, remain in their current score band.
Many risk managers we talk to are predicting that balances will be on the rise in 2014. In fact, 57.6% of the US risk managers we recently surveyed expect the average balance on credit cards to increase. Given the importance of indebtedness calculations in the FICO® Score, if our prognosticators are correct, it will be interesting to see if any rise in balance will halt the slow but steady recovery we’ve observed in credit quality over the last few years.