#278 FICO Scores Surge to Record Highs

by Stephen Michael White

Author

June 1, 2021

Last Updated

Podcast

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Resources Mentioned in this Episode

https://magazine.realtor/daily-news/2019/09/17/fico-scores-surge-to-record-high

https://www.annualcreditreport.com/index.action

Show Transcription:

Eric Worral: (00:00)
Hey everybody. Welcome back to another episode of RentPrep for Landlords. This is episode number 278 and we’re going to be talking about credit scores, FICO scores, and what you should know as we’ve seen some changes over the past year and what those results are. And we’ve actually done some internal data digging on this as well and want to share all that with you on this brief and quick episode.

Voice Over: (00:24)
Welcome to the RentPrep for Landlords podcast and now your hosts, Steven White, and Eric Worral.

Eric Worral: (00:30)
So I saw a good discussion in the RentPrep for Landlord’s Facebook group where somebody was asking about credit scores and if you allow tenants with a below six 26 credit score, which I thought it was a very specific credit score from the poster. But there was some really great dialogue on there. Actually one person said that, she’s like, of course, I would, you can get an FHA loan for under 600 credit score, which I had to look up for my own knowledge.

Eric Worral: (00:56)
And if you’re not familiar, you can get an FHA loan. You just have to have a credit score of five 80 to qualify for the low down payment advantage. So that’s kind of something to be considerate of if you’re thinking in terms of renters, right? You’re looking at their credit scores and thinking about should they be able to live in this rental? Well, there’s a possibility that you might be thinking six hundreds pretty low, but they could actually even get a loan to potentially buy a house. So that’s kind of interesting little tidbit. But we actually ran our own data because we were curious. And if you remember back a while ago, we talked about the fact that credit scores are going to be on the rise and it turns out that was correct. And what we found from a study that we did inside of our office, our screening manager Christie headed this up and what they did is they took the average score out of 530 samples, which we determined to be statistically significant.

Eric Worral: (01:45)
And the average credit score that we got for these renters having credit scores ran on them was 667. So that was interesting because we’ve always said it’s about six 50 from a previous test that we did several years ago. But that has risen 17 points based on our data. Now is that data flawed? Well, I think in some ways all data’s flawed. And what you could say about our data is that it is based on renters that actually have had a credit background check ran on them. Now the reason I think that can make the data flawed a little bit is I think it could actually push it up a little bit because I think the people that know that they’re going to have a credit score run on them are still going to apply to that rental property where maybe the guy with a five 60 credit score said, you know what, I’m not even going to make it in this rental.

Eric Worral: (02:37)
I’m going to go rent across the street where they don’t run background and credit checks. So the six 67 though is based on 530 samples that we used from our own data. But there’s a, a, also a new article that was posted September 17th, 2019 and this was from the national association of realtors and it says that FICO Scores Surge to Record High. So it says that credit scores are rising, which bodes well for mortgage seekers during the lowest rates. The average FICO credit score, which is a widely used measure to a person’s creditworthiness, stands at 706 a record high according to a newly released FICO data. If you’re wondering, well, how does that compare to years past while in 2009 at the end of the recession, the average FICO score was six 86 and then the scores averaged about six 90 in 2006 during the housing bubble.

Eric Worral: (03:27)
So the FICO score in the range of six 70 to seven 39 is considered good. And between seven 40 and 79 99 is very good. So they believed that these significant improvement in the overall population’s credit profile has been the key driver of the 20 point increase in the national average of the FICA score over the past decade. These improvements are reflective of improving consumer financial health as would be expected during a period of economic expansion. Another thing that they mentioned on here is the fact that one of the big factors contributing to higher scores is that the growth of on-time mortgage payments in April, just 2.8% of consumers were 90 days or more late on a mortgage payment within the last two years compared to 7.2% in 2009. And now this one is probably the piece of data that kind of interests you the most. It says millennials who are between the age of 23 and 38, it had less time to build up a credit history. So they tend to have lower credit scores than older adults. The average FICO score for a millennial in the fourth quarter of 2018 was six 65 compared to baby boomers who are at seven 32. And the silent generations seven 56, according to data from Experian.

Eric Worral: (04:37)
So according to this article, the millennial classified as 23 to 38 had a six 65 a credit score. And then what we found from our own data is the average runner has a six 67 credit score. Now, I know that not every renter is younger, but a lot of times that is the tendency to have younger runners, especially millennials who are in some ways a bucking the trend of buying a home because they want to rent. But some interesting data there. And I will link to these resources in today’s show notes. If you do run credit on your tenants and you’re looking at credit scores, just know that those credit scores have been inflated a little bit. And what the FICO score article from the national association of realtors did not touch upon was the fact that a lot of judgments and liens were removed from credit reports in the summer of 2017 and it takes a little bit for all of that to kind of work its way through the system.

Eric Worral: (05:35)
But just that alone was going to pump up and inflate credit scores as well. So a good economy people not being behind their mortgages, judgments and liens being removed from credit reports and just at what we’re seeing here then from that is a record high of 706 for the average person’s credit score, which I, in my opinion, makes sense if we’re saying it’s six 67 to be off by, I think my math is about 39 points there if I’m doing that correctly offhand. But just some interesting data to consider. And then, of course, you can always run your own credit score if you haven’t looked at your own credit report. You can always get a free credit report and I believe it’s called annualfreecreditreport.com. I should, annual free credit report. I’m gonna look that up right now because I don’t want to steer you guys wrong and I’ll include that in the show notes as well.

Eric Worral: (06:26)
Yeah, annualcreditreport.com that gives you access to your credit report, a one from each Bureau. So you can do this up to three times a year. And a, you can monitor your own credit score and make sure that you’re in good standards as well. And I always recommend that over like credit karma or other sites, they typically tend to inflate your credit score to make you feel good so you keep coming back to their site. You go with these sites because they’re going to be more so based on FICO data and measures that are used by people who actually judge you by your credit. So that does it for today’s episode. But if you guys want to join the conversation, always check us out on Facebook at the RentPrep for Landlord’s Facebook group. And that we look forward to seeing you in the group and hearing your feedback. And until next week, you guys have a great week. Take care.