With credit card debt on the rise, consumers should watch their FICO score

Nam Y. Huh/AP file

If you’re like most consumers, opening your inbox and mailbox usually yields bank statements, credit card offers and, of course, bills. One piece of information that might be missing that could impact all those others? Your credit score.

But that could be changing, according to new research from Chicago-based TransUnion, one of three main providers of consumer credit reporting. More than 100 million U.S. consumers joined one of the company’s credit monitoring services between 2018 and 2023, according to Charlie Wise, senior vice president and head of global research.

The jump is attributable to a variety of factors, he said, including changes in spending and credit usage during the COVID-19 pandemic and in the subsequent months after.

“Since 2020, there has been a tremendous pay down of debt. Consumers weren’t spending as much during lockdowns and they had money coming in from stimulus payments” or were taking advantage of pauses in student loans or mortgage repayments, Wise said. Now that those windfalls have ended, coupled with a long-lasting spike in inflation, credit use has rebounded, as have offers of new credit being extended to consumers.

“People are just more interested in their credit scores today,” Wise said. “And they have many more tools available,” including third-party websites such as NerdWallet or Credit Karma, and banks that offer free credit monitoring for their customers.

The good news is that despite total credit card balances increasing by $50 billion to $1.13 trillion in the fourth quarter of 2023, according to the Federal Reserve Bank of New York, most credit scores are solid. The average FICO score — a three-digit number used by lenders, typically ranging from 300 to 850 — is over 700. FICO defines a good credit score as 670 to 739.

If consumers are disappointed in a lower-than-expected score or a significant drop, it’s helpful to understand what factors into that number, said Matthew Toles, senior vice president and client experience manager at PNC Retail Banking for the Great Lakes region.

“There are strategies to bring it up,” he said. But it may take a few months to see scores improve.

Revolving debt, such as credit cards, can impact a credit score just like mortgages or car loans, Toles said. Although the exact methods used to calculate scores are privately held by monitoring services, main factors include the amount of available credit used, payment history and how long the credit line has been in place. Using more than 30% of your available credit, like having a balance of $8,000 on a credit card with a $10,000 limit, can hurt a score. A few late or missed payments can also hurt, so meeting even the minimum payment every month is important. And applying for many credit cards at once can cause a drop in your score, even if you don't end up opening an account.

“In a perfect world, everyone would pay off their balance every month,” Toles said. “But we don’t live in a perfect world.”

Having a very limited credit history — or none at all — can make consumers feel they won’t be eligible for new credit. But that is not necessarily the case, Toles said.

A good way to start is to obtain what is called a secured credit card, which allows a consumer to deposit money into an account and draw upon those funds as if it were a credit line. Becoming an authorized user on an account of a family member is another option because their payment history will show up on your credit report.

Some banks or websites offer credit score “simulators” that predict how your score might go up or down in different scenarios, such as paying off an outstanding balance or missing several payments. But it’s important to note that these results are not guaranteed but only projections, both Toles and Wise said.

If a credit score drop seems unexplained or suspicious, obtaining your credit report can help. Full credit reports, versus a credit score, offer a much more detailed account of your credit history and are available free once a year through annualcreditreport.com, established by the federal government in partnership with the three main credit reporting companies, TransUnion, Equifax and Experian.

While mistakes can show up on a credit report, fraud is another reason to check your credit report regularly, Wise said. The rebound in credit availability and usage since the pandemic has led to a corresponding increase in fraud throughout the industry. If something in the report is incorrect, both banks and credit monitoring services have processes for challenging the information and possibly getting it removed.

The best advice from both Wise and Toles for consumers interested in learning more about their credit scores is to talk to a local bank, even if you don’t have an account there.

“Have a conversation, explain your situation and they will help you find what’s right for you,” Toles said.

This story has been updated to correctly reflect Matthew Toles' statement on revolving debt.