Credit card debt in the US has reached a record high of over $1 trillion, as reported by The Federal Reserve. Surprisingly, the national average credit score has also increased to 718, leaving many perplexed. LendingTree’s Chief Credit Analyst, Matt Schulz, sat down with Yahoo Finance to explain this phenomenon, its implications for consumers, and provide advice on how to avoid accumulating overwhelming credit card debt.
Schulz attributes the credit scores being a “lagging indicator” to several factors. Firstly, they do not reflect individuals’ current standings with regards to student loan repayments and their ability to make those payments. Even when student loan payments become due, defaults and delinquencies will not be reported until a year later. Additionally, credit scores fail to account for the prevalence of “buy now, pay later” loans, which have become a significant trend in consumer borrowing.
Schulz emphasizes the importance of considering these missing elements when interpreting credit scores. The absence of information on student loans and “buy now, pay later” loans skews the overall picture of consumers’ financial health. Therefore, relying solely on credit scores may not accurately reflect their creditworthiness.
To gain more insights from experts and stay updated on market developments, viewers can watch the full episode of Yahoo Finance Live.
In conclusion, while credit card debt in the US has reached an alarming high, the increase in the national average credit score seems contradictory. Schulz highlights the limitations of credit scores as a lagging indicator, emphasizing the exclusion of student loan repayments and “buy now, pay later” loans. Consumers are advised to be cautious when interpreting credit scores and to take proactive steps to avoid accumulating excessive credit card debt.
