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704! This is the new FICO credit rating, the highest ever recorded among millions of Americans, and is good news for homebuyers, sellers, lenders and the entire economy.
What this means, according to Ethan Dornhelm, Vice President of Scores and Analysis at FICO, is that 10 years after the housing crisis and the global financial crisis, Americans are "using credit more wisely." maximum amount of credit available to them, paying their monthly mortgages on time and presenting fewer glaring negatives in their credit files.
FICO scores predict the likelihood that a borrower will default on a loan. They range from 300 – indicating that the person presents an extremely high risk – to 850, which means almost no risk of failure. A rating of 704 is considered good and, along with other favorable factors in your application, will help you get a mortgage, but not necessarily at the lowest interest rate and fees available. A score of 750 will give you basic rates and conditions, but a claim of 450 will probably be rejected. In the area of mortgage lending, FICO scores are used by virtually all lenders and are the only scores that mega-investors Fannie Mae and Freddie Mac accept. They are also widely used for credit cards, auto loans and other loan applications.
FICO periodically surveys a sample of 10 million of the more than 200 million consumers whose credit histories are archived in the three national credit bureaus. In 2009, the average score of consumers nationwide was 686. Since then, average scores have gradually improved with the economy, falling unemployment and rising incomes. The 5-point increase from 699 in 2016 to 704 this year is one of the biggest improvements over two years.
Some notable trends emerge from the latest FICO data on US scores:
- Age is important. Young people aged 18 to 29 tend to have lower scores than other age groups – they get an average of 659. The reason may be that many of them have "thin" files with few accounts payable or transactions. . When they fail to make payments or pay late on a credit card, the event weighs more heavily on their score than they had with a longer history with more accounts. The average score for people aged 40 to 49 is 690 and for people 60 years and over, it is 747.
- Fewer people are facing collection accounts. When you do not pay back what you borrowed, your lender may hire third-party collectors to find you. This is reported to credit bureaus and can depress your FICO score for years. Twenty-eight percent of all Americans had collection accounts in their credit files in 2015; today, it's just 23%.
- The lowest FICO scores are fewer. In 2009, 7.3% of US consumers scored very poorly, ranging from 300 to 499. Now they are 4.2%. In 2009, 8.7% of consumers were between 500 and 549; today it has fallen to 6.8%. Overall, fewer Americans now have FICO scores below 650 than in previous years. In 2009, just under 35% of consumers scored 649 or less; today it is 28.7%.
- Super scorers increase. A record number of Americans – nearly 22%, more than one in five – now have FICO scores of 800 and above. Forty-two percent is between 750 and 850.
- The results of mortgage borrowers are down. Although FICO scores for most consumer categories are up, the average scores of people who take out home mortgages are falling in the opposite direction. In 2009 and 2013, borrowers had average scores of 745; now they are around 733. This may seem odd, but FICO says it shows that lenders are slightly loosening their approval standards to include a wider range of borrowers – people with thin files, credit history and higher debts. -the income ratios. Think of the first millennial buyers and people who hit during the Great Recession.
What to do with the latest FICO numbers? Lessons from the housing crisis and the recession clearly impact consumer scores and behavior. Dornhelm thinks more Americans have access to their credit ratings and understand them better than in previous years and avoid doing things that can depress them, such as credit cards.
If you are smart, you do the same thing.
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