Responsible management of personal finances does lead to improving credit scores and greater access to credit! An interesting case study.
FICO analyzed at random approximately 1.2 million new-to-credit consumers to determine how their credit changed during their first six years (2005 – 2011). 50.1% started out with a bank card as their first choice. Next most popular were student loans, retail cards and auto loans.
- After the first year the median credit score was 659 as compared to the national median FICO Score of 713
- By October 2011, as this group gained credit experience, one third of which scored above 700, another one third scored in the range of 580 to 700 and the remaining third scored below 580.
FICO also investigated which credit factors played significant roles in moving the scores of this population. FICO profiled those people in the group whose scores improved by 50 or more points between October 2006 and October 2011 (upward movers), and those whose scores declined by 50 or more points (downward movers). FICO found the strongest factors to be payment behavior, revolving balances and balance-to-limit ratio.
The great majority of upward movers showed no accounts 30 or more days past due after six years, while downward movers showed a median value of four delinquent accounts. Revolving utilization was also a telling factor. For upward movers, the median value for revolving account utilization was 7%, and the median value for total revolving balance was $532. The corresponding figures for downward movers were 53% and $1,057.