FICO credit ratings are now at their highest level … here's why

The credit ratings of Americans are higher than ever.

The average FICO score, a credit rating widely used and named by Fair Isaac Corporation, is now 704.

It reached that figure in April 2018, according to a FICO report released Monday, an increase of four points since the average score reached 700 for the first time in April 2017.

The Americans' FICO scores fell to their lowest average in October 2009, when they were only 686 on average.

Ratings are considered a key assessment of the solvency of someone, and a low rating can prevent consumers from accessing the mortgage, car loans and even jobs. Higher credit scores give consumers access to better rates on loans and credit products, as credit cards offer higher rewards and more benefits.

Scores range from 300 to 850 and are based on information such as the payment history (and whether the consumer has paid his bills on time), the amounts owed to various lenders and the length of the credit history.

The scores of 800 and above are considered "exceptional", those of 740 to 799 "very good" and 670 to 739 "good".

Why are FICO scores increasing? On the one hand, people know more about their credit and how to increase their scores than in the past, said Ethan Dornhelm, vice president of scores and predictive analytics at FICO.

What's more: "Lenders have long ago, perhaps in response to the Great Recession, been cautious in their underwriting," he said. In other words, lenders are more cautious and give loans to the people most likely to repay them.

For example, only 23% of consumers who earned FICO scores had debts that were paid to collections, compared to about 26% several years ago, he said.

Some consumers may also have benefited from a new policy that removes civil judgments from some people's credit reports, improving their results with the three major credit bureaus, Equifax.

EFX -0.09%

, Experian

EXPN, -0.26%

and TransUnion

TRU -1.58%

.

On average, the scores have increased by 10 points thanks to the new policy.

Consumers were also more responsible for their credit, which could lead to an increase in their results.

The percentage of people late in payment – that is, 30 days or more late – reached 1.73% in the first quarter of 2018, compared to 1.64% in the fourth quarter of last year, but still below the 15-year average of 2.14%. This is what the American Bankers Association, a banking business group, says.