Americans’ credit scores have fallen for the first time in a decade. According to a March 2024 report by FICO, “the effects of high interest rates and persistent inflation may be starting to weigh on consumers, especially those already struggling to manage their finances.”
The FICO report found that the national average credit score dipped to 717 in October 2023. Today we’re going to talk about what this information means for the consumer, the economy, and how building your financial education can help you if you’re struggling with your credit.
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Credit scores have dropped for the first time in a decade. This is a major indicator that people are struggling with debt, as well as their overall finances. This drop is said to reflect that Americans are accruing more debt and missing more payments.
On top of the general mounting debt, more and more Americans are also going into delinquencies on their credit cards. Credit card delinquencies reached 8.5% in the fourth quarter of 2023 – up from 5.87% in 2022, and 4.1% in 2021. So this number has more than doubled in a span of two years.
Your credit score can influence your ability to qualify for a mortgage, a car loan, a place to rent, and it can even dictate the rate you pay for insurance. So while your credit score isn’t the most important thing in the world, but that doesn’t mean you should disregard it entirely.
We know that inflation and interest rates are hurting American’s wallets. But is it possible to prevent these external factors from damaging our credit scores?
For the most part, I think so. There is a huge lack of education that is undermining what’s happening with credit scores. Americans are generally uneducated about credit cards and credit scores, unfortunately. And the entire credit card system is working exactly as planned.
Credit card companies prey on young and low-income demographics. I mean, go to any college campus during their welcome week, and you’ll be sure to find tables with bankers just waiting to sink their hooks into the next new student – who, of course, has little to no financial education.
Most Americans don’t understand how a credit card actually works, let alone an APR. They don’t understand how minimum payments and interest rates work together to keep you locked into the credit card game. A 2023 survey by Clever found that 28% of card users don’t even know what their credit card’s interest rate is… This is troubling.
And if the credit card companies they can get you as a customer early on, like my college campus example, the deeper in the hole they hope you’ll get. These companies are betting that you’ll only make the minimum payment, while they collect exorbitant amounts of interest, month-after-month, year-after-year.
The average credit card APR, or annual percentage rate, is hovering around 21%. Certain store credit cards have even been charging record interest rates of 33%. Sure, credit cards need to make money, but 33% is just predatory, and you won’t be able to convince me otherwise.
Now listen, credit cards are not inherently evil. I’m not saying you should cut up your credit cards and never use them again. Credit cards are a financial tool, and if you know how to use them wisely, then you’re good to go! But sadly, most Americans do not – and that’s exactly what we’re seeing in the data.
And again, the credit score isn’t the end-all, be-all when it comes to your finances. Generally speaking, I’m not a big fan of the credit score as a whole. I’ve seen it disempower a lot of people. They’ve got this one number in their mind that’s ruining their lives and stopping them from pursuing their goals… The credit score leaves people feeling powerless over their finances.
But if you’re in a tight spot, missing payments, and being consumed by these predatory high interest rates, I know that’s a tough place to be in… I’ve been there too. It can take years to dig yourself out of that hole… and the mental drain can really get you down.
If you’re struggling with credit card debt and a low credit score, you’ve got to take the time to get financially educated on these topics. Most Americans have very little understanding of what components make up their credit score, or how credit card interest rates work. Take control of your financial intelligence by reading, listening to podcasts, and watching videos.
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