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Credit Scores Reveal the Surprising Impact of Debt
Released January 2005
Findings:
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U.S. consumers’ average debt is 12 percent higher compared to the same time
last year.
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U.S. consumers have an average debt of $11,224 compared to last year’s average
debt of $10,024.
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25 percent of U.S. consumers have debt that is above the national average and
their average Experian PLUS Score is 695.
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The average PLUS Score for consumers with debt below the national average is
671.
Debt and Consumer Credit:
Many Americans are no strangers to debt. From the moment you borrow money for a
car or put a charge on your credit card, it’s there. But what kind of impact
does debt have on your credit? The latest findings from the Experian National
Score Index (ENSI) reveal an interesting twist on the correlation between the
amount of debt and your credit score.
More credit available could lead to an increase in debt
U.S. consumers may find credit more readily available now than ever before.
There are many financial organizations willing to extend credit to consumers in
exchange for the lucrative opportunity of requiring payments back with
interest. And with the extension of more credit, this can lead to higher
amounts of debt per consumer. In fact, the U.S. consumers’ average amount of
debt is increasing. Last year, the ENSI study found the U.S. consumer’s average
amount of debt to be $10,024.33. This year, the U.S. consumer’s average amount
of debt has increased to $11,223.97.
The ENSI study took a further look at debt and discovered 24.7% of the
population had debt that was above the national average, with an average PLUS
Credit Score of 695. Conversely, the average PLUS Score for the population with
debt below the national average was lower – at 671. The study indicates that
it’s not necessarily just the amount of debt that is calculated in your credit
score, but how debt and other financial obligations are managed as a whole.
Credit management determines credit opportunities
How well you manage your credit can play a big part in your future credit
opportunities. Creditors and lenders may review your credit report and score to
evaluate your creditworthiness. Generally, the higher the credit score, the
lower the credit risk – and essentially, the more likely you are considered to
be responsible with your financial obligations.
Generally, people with higher scores tend to receive more favorable credit
terms and interest rates than those with lower scores. Likewise, studies have
shown that higher available limits are typically given to those with good
credit and higher credit scores. This places consumers in the precarious
position of having a large amount of credit available at their disposal, which
could lead to accruing more debt.
Your credit score may also indicate signs of financial trouble. Negative
account information on your credit report can seriously affect your credit
score. One of the most damaging forms of negative information is having a
bankruptcy on your report.
The devastating effect of bankruptcy
What happens when you are engulfed with financial difficulties? When the
possibility of becoming debt-free looks slim, you may be faced with considering
bankruptcy. However, bankruptcy should be a last resort when debt grows out of
control. Bankruptcy isn't an "easy" out – it can make it difficult for you to
obtain new credit, an apartment, or a job for up to 10 years, a consequence
that must be weighed against the benefit of relief from your debts. Filing for
bankruptcy can considerably impact your credit score. The ENSI study found the
U.S. consumers’ average PLUS Score fell 80 points - from 682 to 602 - when a
bankruptcy appeared on their credit report.
Regardless of where your financial situation stands, remember that debt
management plays a big part in your credit. Responsible credit behavior such as
paying bills on time, keeping your debt-to-limit ratio under control, and
checking your credit report and score are key to managing your finances.
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