Average FICO credit scores hit record highs — 5 things you should do

Improving your credit score starts with developing good financial habits. (iStock)

The coronavirus pandemic has taken a toll on many Americans' financial health but surprisingly, consumer credit scores are trending higher. The average FICO credit score is now 711 — up five points from the average score one year ago.

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If you've seen your FICO scores climb, these tips can help you keep improving your credit.

Consolidate debtsContinue to pay bills on timeIncrease credit limits Don't close credit cardsBe selective in applying for new credit

While FICO scores are up, debt levels are on the decline. If you're focused on paying off revolving debt, such as credit cards, that could help with improving your score.

With interest rates near historic lows, now could be an opportune time to consider getting a personal loan for debt consolidation.

If you want to gauge your potential savings on interest, you can visit Credible to compare rates from multiple lenders and use a loan calculator to estimate monthly loan payments.

"Paying off multiple debts with a single, larger loan with a lower interest rate and perhaps longer repayment period can reduce the monthly payment amount," said Rod Griffin, senior director consumer education and advocacy at Experian. "As a result, you may be better able to manage payments and ensure they're on time, protecting your credit history."

And the more your balances decline, the more you could improve your credit utilization ratio. This refers to the percentage of your available credit limits you're using at any given time.

FICO scores are composed of five factors:

Payment historyCredit UtilizationCredit history lengthNew credit Credit mix

The most important among these is payment history. A credit history that's characterized by on-time payments could translate to a higher credit score.

If you have a strong history of paying off credit cards on time but are missing a good credit mix or new credit, consider opening up a new credit card. You can browse various types of credit cards using Credible's free online tools. Get started with your card research today.

According to FICO, just 7.3% of Americans had a 90+ day past due missed payment over the last six months, which is almost a 1% decline from the pre-pandemic era. If you've been making payments on time already, then stick with that strategy.

If you think you might have difficulty making payments, talk to your lenders before you're late, said Griffin. "They have tools and resources under the current circumstances that may help you stay on time or delay payments until you get through a rough financial stretch."

After payment history, credit utilization is the second-most important factor affecting FICO scores. Paying down revolving debt can help improve your credit utilization ratio but that's not the only way to do it. Requesting a credit limit increase for one or more of your credit cards is another strategy.

Find out whether requesting a credit limit increase will trigger a hard inquiry versus a soft credit check. Hard inquiries can show up on your credit history and take away points from your credit, while a soft pull does not.

Avoid the temptation to make new purchases that would increase your total balance. If you're increasing credit limits but simultaneously increasing your balances, that may result in negative, rather than positive, score changes.

Closing credit cards down may seem like the logical choice if you're not using them, especially if you're paying an annual fee. But doing so can negatively affect your credit utilization ratio if it reduces your overall credit limit.

If you have a card you aren't using that has an annual fee, you may be able to have your account downgraded to a different card. This is something you could ask your card issuer about.

You can check out Credible to explore different credit card offers to find one that's right for you.

Applying for new credit cards, a personal loan or an installment loan can reduce your credit score if a hard inquiry lands on your credit report. For that reason, it's important to limit how often you apply for loans or credit cards when you're focused on improving your credit.

If you do need to apply for credit, shop around first. Remember, you can compare credit cards and personal loan rates at Credible.com without impacting your credit scores.

If you have student loans or a mortgage that's in forbearance under federal CARES Act guidelines those won't count in your credit score calculations, Griffin said. But consider how you'll manage them when forbearance ends to keep your credit score intact.

Refinancing, for instance, could help you secure lower interest rates and streamline monthly payments. Using an online tool like Credible can help you compare student loan refinancing rates in one place. And while you're there, you can also compare mortgage refinance rates and lenders.

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