Are More People Getting Bad Credit Scores?

In the wake of the dual 2008 housing and banking crisis, the majority of United States citizens made a concerted effort to save more and spend less. This attitude was reflected in the financial statistics of the time period between 2008 and 2013. Economists marveled at the percentage of total income that most Americans were able to save throughout that time period, even as many of them decried the practice as somehow stopping the economy.

However, this trend of saving more and spending less seems to have reversed itself completely in a relatively short period of time. Today, many of the major news outlets and reputable financial agencies report that Americans are now earning worse credit scores than ever before and going back to bad habits that predated the coming of the 2008 crisis.

The Stats for American Saving and Spending

As it stands today, the average American family owes US $7,813 on credit cards. This adds up to a total amount on credit of over US $900 billion for the country. To put these numbers in perspective, this household figure is the highest since the crash of 2008 - families held an average of US $8,428 in credit card debt during that year.

These stats are made worse when one considers that the trend that started them actually began a full 10 quarters ago. According to a new analysis by Card Hub, a top credit card comparison site, year over year regression of consumer performance is especially bad in the last 10 quarters, with seven of those quarters showing that the American consumer is moving back towards the behavior that got him into trouble in 2008 in the first place. These people seem to be taking a very short term approach when it came to cashing in on the savings that they had put up following the Great Recession. These habits coincide with a rising debt level overall, as mentioned above, and more access to their credit cards and credit reports.

The Average FICO Score and What That Means

As it stands today, the average FICO score as reported by the Fair Isaac Corporation is now 695. The score ranges from 301 to 850, with a higher score being better. A similar analysis from Experian, one of the top three credit rating agencies in the United States, puts the score at around 667.

In general, 750 is considered a good credit score that will get a borrower the best rates on large asset loans and other financial proceedings. Anything below that is beginning to dip into highly questionable territory for a nation that does not yet seem to have its financial bona fides in place for what could possibly be another financial downturn.

The Federal Reserve seems to mirror this uncertainty with their unwillingness to test the marketplace by raising the base interest rate of the country to a level that is actually tenable over time. Ever since the 2008 crisis and downturn in the economy, the Federal Reserve has basically held the basic interest rate of the country, or the rate that banks borrow from other banks, at near to zero. This is a level that cannot be sustained over time, and even the Federal Reserve admits this. However, they cannot raise the rate to a market level until the economy has been shown to be stable. The more bad credit there is on the books of Americans, the less stable that the economy becomes.

Keeping the interest rate low with high credit all over the country lowers the value of the United States dollar, making that dollar much less able to conduct trade with other countries. This puts the United States at a huge disadvantage in trade with all countries, and virtually ensures a trade deficit that will continue to add to the deficit of the country itself, a number that continues to rise and that the citizens of that country will eventually be beholden to pay back.

Myths about Credit

Even with all of the bad reports about credit on the market today, there are still ways for you to keep yourself out of the mud pit when it comes to credit. However, the first thing that you must do is to destroy all of the myths that have been put into the air about credit.

Bankrate.com, a highly reputable online banking site, found that around 77 percent of United States citizens had absolutely no idea that accounts that they held with high outstanding balances were hurting their overall credit scores. This is true even if the bills are being paid on time. 55 percent of these people actually thought that carrying a balance over from month to month helped their credit score. This is far from the truth.

Many people also believe that they can fix their credit in the last minute if they are getting ready to make a large asset purchase. This is also patently false. Aside from the mistakes that the credit rating agencies themselves often make, dealing with each problem on a credit report is a time consuming effort that has the potential to far outpace the timing on the purchase of a house or a car. If you are trying to clear your credit report up for the purchase of a house, do not wait until the last minute to do it!

Lastly, people often thought that simply holding many credit cards helped their credit score. They did not consider the percentage of money that they were borrowing as opposed to their total borrowing power - just the amount of money that they had as a credit card maximum. This is a mistake that may cost these people tens to hundreds of thousands of dollars on a loan in the future.

The Way to Avoid a Personal Financial Ruin and Collapse

There are also many myths about how to go about getting out of debt and creating a financial safety net. Most financial advisors will actually advise against throwing all funds and income streams into debt repayment. There is also the notion of building an emergency fund and paying for insurance packages that will keep an individual from going back into debt because he or she faced one unexpected emergency.

The best way to keep yourself out of financial ruin and disaster is to pay off debt at the same time that you build an emergency fund for future debt. Stay off of the credit cards for commercial purposes, and make sure that you always monitor your credit score using one of the free sites.