Average credit scores continue climbing, despite rising debt


Consumers managing their rising debt load well, credit bureau says

Senior Reporter
Expert on consumer credit laws and regulations

State of Credit report

Consumers managed to improve their credit scores overall in
2017, despite rising levels of debt.

That’s according to the annual State of
report from Experian, one of the big three credit bureaus.

“From a credit standpoint, people seem to be doing better at
managing their debt,” said Rod Griffin, Experian director of public education.

The average U.S. VantageScore credit score rose to 675 last
year, from 673 in 2016, the report said. The State of Credit analysis looks at
credit reports – minus people’s names and identifying details – about the
middle of the year. The 2017 averages are based on data from 15 million reports

The improving credit profile “is not zooming upward,”
Griffin said, “but two points is not insignificant either.” The scores tend to
rise in tandem with improvements in the economy, such as rising economic growth
and falling unemployment.

Credit scores have been gradually recovering since the Great
Recession of 2008-09. The 2017 level puts the average VantageScore within four
points of its pre-recession level in 2007, Experian said.

Average debt, credit score figures from Experian’s ‘State of Credit’ report:

  • Average credit score: 675
  • Average number of credit cards: 3.1
  • Average balance on credit cards: $6,354
  • Average number of retail cards: 2.5
  • Average balance on retail cards: $1,841
  • Average mortgage debt: $201,811
  • Average nonmortgage debt: $24,706
  • Average score for silent generation: 729
  • Average score for baby boomers: 703
  • Average Generation X: 658
  • Average Generation Y: 638
  • Average Generation Z: 634

“From a credit standpoint, people seem to be doing better at managing their debt.”

The Experian study uses VantageScore,
which is designed by the major credit bureaus, and is an alternative to the better-known FICO
. Both measure people’s credit risk by looking at their debt levels,
repayment history, recent credit applications and other financial factors. FICO scores have also been steadily rising since October 2013. Last year, the average FICO score reached 700 for the first time.

While rising credit scores indicate stronger household
finances, Griffin cautioned against interpreting the scores as a direct
comparison of consumers’ economic well-being over the years. Credit scores “are
looking at one small piece of the economic puzzle,” he said.

Average scores would tend to rise overall as the wave of
foreclosures and bankruptcies caused by the recession recede further into the
past, reducing their weight on people’s current scores.

How debt averages out

The average consumer’s balance on bank-issued credit cards
was $6,354 for 2017. The average number of bank cards was 3.1. In 2016, the
average balance was $6,188 on a comparable basis, Experian said. The balance
analysis includes only active cards, the company said.

As for retail cards, people carried an average of 2.5 of
them in 2017, with average balances of $1,841, up from $1,768 in 2016 on a
comparable basis.

According to the Federal Reserve, card balances rose about $52
billion overall during the period from mid-2016 to mid-2017, or about 6 percent.
The Fed’s G.19 report of revolving debt, as reported by banks, shows balances have
surpassed their pre-recession peak, and recently posted
a new all-time record of more than $1.02 trillion in November, on a
seasonally adjusted basis. The preliminary figure is subject to revision.

“The trend line that we are seeing is quite promising. All of the factors point toward a good year for credit in 2018.”

Outlook for 2018

Will consumers continue their winning streak in 2018, with debt levels
rising and interest
rates going up
as well?

With employment levels rising and economic growth projected
to continue, the foundation for consumers’ finances should remain strong,
Experian said.

“The trend line that we are seeing is quite promising,” Michele
Raneri, Experian vice president of analytics and new business development, said
in a statement. “All of the factors point toward a good year for credit in

While debt levels are up, consumers’ ability to repay is
stronger than in past year, according to Federal Reserve figures. Household
financial obligations as a percent of disposable income stood at 15.83 percent
in 2017’s third quarter. That’s a relatively low debt burden historically, and
substantially below the pre-recession peak of 18.1 percent.

Meanwhile, banks are
throttling back on new loans and credit lines as consumer debts rise, reducing
their risk profile, according to senior
bank loan officers

Scores not evenly

Looking at different age groups, Generation Xers, born
between 1967 and 1981, had had the highest average credit card balances, at
$7,750. They were followed by baby boomers (1947-1966) with $7,550; silent
generation (before 1946), $4,613; Generation Y (1982-1995), $4,315; and
Generation Z (after 1996), $2,047.

The average balance figures aren’t the same as a typical
debt burden, Experian warned. The average includes some consumers who have a relatively
large balance that they’re able to pay off every month. Other cardholders may
have a smaller balance, but struggle to make monthly payments.

While Experian found that credit scores overall were up,
some areas of the country and some demographic slices of the population did
better than others.

A big difference between generations is the utilization
rate on credit cards
, or how much of the available balance is absorbed by
spending, Griffin said. Utilization rates are higher for younger people, which
holds back their credit scores, he said, although it is not necessarily a sign
of poor debt management.

“It’s about the life cycle – I think it’s related to youth,
education and kids,” Griffin said. Families starting out naturally spend more –
and lean more on their credit – than those further along in life. Silent
generation seniors had the best average credit score, at 729. Generation Z, with their short credit history, had the lowest average score at

A big difference between generations is the utilization rate on credit cards – higher for younger people, which holds back their credit scores, although it is not necessarily a sign of poor debt management.

Where the scores are

As in past years, some northern states came out on top of
the credit score rankings, while parts of the deep South came in last.
Minnesota, Vermont, New Hampshire and South Dakota posted the best average
credit scores, while the lowest scores hit Mississippi, Louisiana, Georgia and

“We know people in Minnesota are managing their credit
really well – as to why, it’s hard to say,” Griffin said. “It may be related to
the job market; it may be related to education.”

Areas with a better economy
and education levels tend to do better managing their finances; but attitudes
toward money may play a role also, he said.

“Culturally there’s maybe a different perspective on banking
and borrowing,” he said.

See related: Average credit score climbs in Experian study, Survey: Who is most likely to carry credit card debt?

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