What Experian's State of Credit Report Means to You
Published on December 6th, 2019 by CreditFresh
By comparing financial info a decade after heading into the Great Recession, Experian’s latest report can be a source of good money management tips.
Today, we’re taking a look at the Experian State of Credit 2019, a study that examines the ways Americans use credit.
To create this study, Experian looks at the consumer files they have, specifically using statistically relevant data which did not contain personally identifiable information. This includes borrowers who can access prime loans to people who use personal line of credit loans that are available to those with poor credit.
This impartial look at this data helps Experian provide unique insights to the country’s credit behaviors. Let’s dive into what they may be before we share good money management tips.
What is the Experian State of Credit 2019?
Experian is one of the three major credit reporting agencies (CRAs) that, along with Equifax and TransUnion, generates reports and credit scores for many consumers.
Unlike the other two that make up the “Big Three”, Experian also moonlights as a global information services company — which is a fancy way of describing the data analysis services it provides to businesses around the world.
This arm of the company makes Experian uniquely qualified to examine the consumer data it collects when generating reports.
Each year, it publishes its key findings in an Experian State of Credit report in a bid to improve the country’s financial literacy.
"With this annual report, our goal is to provide insights that help consumers make more informed decisions about credit use to change their financial habits and improve financial access," says Rod Griffin, Director of Consumer Education and Awareness at Experian.
The Experian State of Credit 2019 Marks a Special Milestone
This year marks the 9th annual State of Credit report, allowing Experian to compare credit behaviors from 2018 with data from 2008 — the year the U.S. headed into the Great Recession.
As the worst financial crisis in 80 years, the Great Recession had a profound impact on the country’s finances.
More than a decade in the past, the recession’s effects are still felt by many Americans today. A 2017 study found that 3 in 10 Americans felt as though they have yet to, or never will, recover from it.
The Experian State of Credit 2019, however, indicates things may be changing. While the scores have yet to match pre-recession numbers, responsible credit card behaviors and lower debt among younger consumers are driving an upward trend in average credit scores across the nation since the recession.
"We're continuing to see the positive effects of economic recovery, through improved credit scores and lower delinquency rates," said Michele Raneri, Vice President of Analytics and Business Development at Experian.
Highlights of the Experian State of Credit
There’s a lot to unpack in this report, so we’re focusing on just three takeaways in this post.
Below, you’ll find a quick comparison between the 2008 and 2018 on average scores, revolving utilization ratios, and delinquency rates. Check it out to see the difference a decade makes.
|Average revolving utilization||28%||30%|
|Average 30 days past due delinquency rates||5.4%||3.9%|
|Average 60 days past due delinquency rates||2.9%||1.9%|
|Average 90+ days past due delinquency rates/td>||7.1%||6.7%|
Take Away #1: VantageScore & the Average Credit Scores in America
For our regular readers, you may recall our post about FICO and VantageScores. But don’t worry if it’s your first time visiting our blog.
VantageScore is simply one of the scoring models used to generate your report and score. VantageScores fall somewhere on a scale of 300 to 850, and these numbers are organized into the following five ratings:
- Very Poor: 499 and below
- Poor: 500–600
- Fair: 601–660
- Good: 661–780
- Excellent: 781 and above
This means in both 2008 and 2018, the average credit scores in America — 685 and 680 respectively — fall neatly into VantageScore’s good category. This makes the average consumer a prime borrower.
Why Does This Matter?
Your score plays an important role in your ability to get financial help in an emergency. Many financial institutions may look at your score to perform a risk assessment of you as a borrower. If they do, it helps them determine if they’ll issue you a loan, like a line of credit for example, and at what terms.
With an average score of 680, many Americans will have a reasonable chance of being approved when looking for a line of credit with favorable rates and terms.
Someone with a good credit score may also find it easier to get an apartment, apply for a job, or even secure car insurance should their landlord, employer, or insurance company look at scores.
What is a Subprime Credit Score?
Subprime scores, which include VantageScores of 619 and below, may make it difficult hard to get financial help. But don’t panic if your score is lower than the average credit score in America — whether that’s the average from 2008 or 2018.
While a lower score may complicate your search, you may still be able to get financial help quickly with a personal line of credit that does not automatically reject people with subprime scores.
Take Away #2: The Nation’s Revolving Utilization is Under Control
When Experian — or any financial institution, for that matter — mentions your revolving utilization, what they’re talking about is how you use your available credit on accounts like a line of credit or credit card.
Now, you may know that there’s a big difference between a line of credit and credit card, but these two types of accounts are typically similar in the way you pay them off. As you use them and make payments, your balances may go up and down, and your minimum monthly payment will fluctuate alongside your use.
You have a choice of carrying over a balance each month (as long as you’re making your minimum payments) or paying everything off. If you pay your balance in full, you’ll have access to your entire credit limit again.
This flexible payment style gives financial institutions and CRAs insight into how people manage debt. Revolving utilization is the metric they use to determine if someone is managing payments well or if they’re struggling to make payments on time.
Revolving utilization — or utilization ratio, as it’s also known — compares how much of your line of credit you use to the total limit available.
Generally, you want to use 30 percent or less of your limit at any given time — which is good news for the nation. The average credit utilization from Experian’s study was 30 percent in 2018.
To a financial institution, this generally suggests you’re doing a good job of handling your finances by paying off your balances and not overextending yourself by maxing out your available credit.
Bear in mind that 30 percent is a recommendation but not necessarily the goal. There is no credit utilization too low for your revolving accounts — a credit utilization as low as zero percent could be beneficial to your score.
As a general rule of thumb, the lower you go, the better. The average consumer with an excellent score has a utilization ratio of seven percent.
If lower is better, then there is such a thing as a credit utilization too high for your revolving accounts. But what that number is depends on what is already in your file.
Revolving utilization is just one factor that goes into telling a financial institution how you handle debt. They may also look at payment history as well as these other factors to determine your risk as a borrower. What they see here may change the overall impact that a higher utilization has on your credit history.
All this is to say a utilization ratio that’s slightly higher than the recommendation doesn’t automatically doom your finances — just like a low ratio doesn’t automatically mean you’ll have a perfect score.
All it does is add good entries into your file. Whether these entries are enough to affect your score positively depends on your existing finances.
Delinquency Rates Dip to Decade Low
Past due, late payment, overdue — notices like these don’t exactly inspire warm and fuzzy feelings. They mean you haven’t paid your bills on the day they were due, and you may end up owing more as a consequence.
Knowing you’re behind on your bills can be incredibly stressful and not just because your creditors may be hounding you to pay — although that doesn’t help matters! You may also worry about what it might do to your credit history.
If just one missed payment may have an impact on your history, your report may be seriously impacted from a series of missed payments. The longer they go unpaid, the more likely they may turn over to a charge-off, collection, or repossession. Each of these entries adds another black mark to your file.
While some people continue to struggle to pay their bills on time, the Experian State of Credit shows an overall positive trend in the way Americans pay their bills. Over the past decade, the average delinquency rates have dropped across the board.
Regarding delinquencies, the fewer delinquencies you have on your report the better. It’s important to always make timely payments on all your accounts.. Eventually, negative entries do fall off your report to make room for newer payment activity, but they are on your report for long enough (typically between 7 and 10 years depending on the severity of the delinquency) to negatively impact your score, potentially significantly.
If you manage to keep newer payment activity positive by paying your bills on time, every time, you may be able to positively impact your credit history.
What Can We Learn from the Experian State of Credit Report?
Experian’s comprehensive look at borrowing behaviors shows things are looking up for some consumers across the nation. The average revolving utilization and score are on target, and delinquencies are on the decline.
But more importantly, the Experian State of Credit 2019 is a learning tool that identifies ways you might improve your credit performance. As Rod Griffin of Experian explains:
“Understanding the factors that influence their overall credit profile can help consumers lead financially empowered lives.”
Good Money Management Tips to Remember
So how can you take control of your life and potentially make an impact on your history? These good money management tips set you on the right track.
1. Pay Your Bills on Time
Paying your bills on, or before the due date is an important money management tip which ensures you avoid adding a delinquency on your file.
If you already make a habit of this, then congratulations! As long as your financial institution shares your payment history with a CRA, you’re adding positive payment activity to your credit history with each bill!
But if you struggle to pay your bills on time, you need to work on breaking this habit.
Weigh the pros and cons of a line of credit before you use it to pay a bill. It may be a safety net when you face unexpected emergency bills or repairs, but it’s not the ideal tool to help cover any type of expected or regular bills since this may be an expensive form of credit.
2. Try to Pay More Than the Minimum Payment
When money is tight, knowing you can pay the minimum payment is a huge relief. Sometimes, the minimum payment due may only represent a small percentage of your overall balance due but, when funds are tight, it may be easier to handle than the full balance, and by paying the minimum amount due you’ll avoid adding a delinquency to your file.
It’s important to not make a habit of paying the minimum when you can afford to pay more. If you have the cash to spare, pay as much of your balance as possible.
This will help manage your revolving utilization, which reflects well on your ability to handle debt. You’ll also avoid paying more interest than you have to.
Every time you carry over a balance, you may accrue interest and/or pay a finance charge. You can avoid these extra charges by simply paying off your outstanding balance in full every month.
3. Use Less of Your Revolving Limits
Another great way to manage your revolving utilization is by changing the way you use any lines of credit or credit cards you may have. Keep them as an option for when an unexpected emergency threatens to potentially harm your finances.
Otherwise, don’t rely on them to make everyday purchases.
This may help you manage your spending habits. You won’t be charging your account with frequent purchases that may impact your utilization ratio. You’ll also be less likely to tap into your limit for things you can’t afford, piling on purchases that may make it harder to pay off your balance in full.
4. Check Your Report
Regularly checking your credit report is one way to keep tabs on your finances. Checking your report helps you understand how your financial behaviors in the real world impacts your profile in the CRA’s databases. It also gives you a chance to catch errors or fraudulent activity that may be lowering your score unfairly.
As good money management tips go, here’s a two for one: The three major CRAs offer a free check once a year — giving you three opportunities over 12 months to track your report. Rather than blasting through all of them at once, spread them out every four months to get an even coverage of your year.
Improve Your Financial Literacy
Thanks to its look back into the past, the Experian State of Credit 2019 helps to highlight important financial trends happening in the country. But this may not be the most significant takeaway of the report.
Its true value is showing you how your financial choices have an impact on your report and scores. Learning how to manage these choices wisely may help you impact your credit history in the future.
Remember the good money management tips you learned here today. They form part of a great foundation for your personal financial literacy.
If you’re ready for more light reading on financial literacy, check out our post on myths you shouldn't believe about online loans. What you learn there may help you navigate the world of online loans with confidence, and informed borrowing may help you manage your credit history better.