Average Credit Score Drops for the First Time in a Decade

Recent trends in credit scores and credit utilization have caught the attention of financial analysts and consumers alike, sparking discussions about the current state of personal finance. Reports indicate a noticeable decline in average credit scores, accompanied by an uptick in credit usage across the board. This shift suggests a changing landscape in how individuals manage their debt and credit facilities, potentially signaling a broader reassessment of financial strategies amidst various economic pressures. The increase in credit utilization could imply that more people are relying on credit to manage their day-to-day expenses or perhaps to bridge gaps in their financial situations. While fluctuations in credit metrics are not uncommon, the observed trend of decreasing credit scores in conjunction with higher credit usage warrants a closer examination of its implications on financial health and economic behavior.

The news from CNBC highlighting this trend adds a layer of credibility to the observations, emphasizing the need to understand the underlying causes and potential consequences of these shifts in credit behavior. It prompts a critical question: should the average consumer be worried? On one hand, increased credit usage could reflect consumer confidence and an active engagement with credit as a financial tool. On the other hand, it may also hint at financial distress among consumers who are increasingly dependent on credit to make ends meet. The decline in credit scores could affect individuals’ ability to secure loans, mortgages, and other financial products on favorable terms, potentially leading to a cycle of higher costs and deeper indebtedness. As we navigate this evolving financial landscape, it becomes crucial for consumers to adopt a more conscientious approach to credit management, ensuring that they are making informed decisions that will not jeopardize their financial future.

Finance Coach Jeannie Dougherty shares her apprehension towards this trend.

“I am concerned that this drop paints the picture of uncertain economic times and a lack of individual accountability toward people’s financial futures. While your credit score may seem like an arbitrary number, it will have a large impact on your ability to be comfortable in the future,” she says.

Jeannie believes that mental health and spending habits are closely linked, and encourages others to adopt a “money brain” to help make better financial decisions.

The concern expressed over the declining credit scores and increasing credit usage reflects deeper worries about the broader economic landscape and individuals’ attitudes toward their financial planning. The ability to secure loans with favorable terms, afford a home, or even invest in future opportunities is heavily influenced by one’s credit score. Thus, the recent downturn in credit scores could potentially narrow the financial options available to individuals, making it increasingly difficult to achieve a state of financial comfort and security in the years to come.

Jeannie’s insights into the relationship between mental health and spending habits offer a constructive pathway for addressing these concerns. By fostering a “money brain,” individuals can develop a mindset that prioritizes thoughtful financial decision-making, aiming to enhance their financial well-being. This approach emphasizes the importance of understanding and managing one’s emotions related to spending, advocating for a more disciplined and informed approach to personal finance. 

“Our brains often see indulgent spending as self-care, but part of self-care is loving all parts of you – past, present, and future. The sooner you start taking care of your future self, the more they will thank you, and it begins with your credit score.” 

Here are three ways to avoid seeing your credit score drop: 

1. Pay off your credit card every month – don’t spend more than you have to give

2. If you have anything in collections, ask for a goodwill deletion if they are paid off

3. Keeping your credit utilization ratio high, especially above 30%, can prevent your credit score from increasing

By integrating these practices into daily life, individuals can begin to take care of their future selves today, ensuring a path towards financial health that their future selves will undoubtedly be grateful for.