Have you checked your credit score lately? It might have improved during the pandemic, and there are steps you can take to help that process along. In fact, many people are at a critical moment when they can either raise their scores or revert to their old spending habits.

While we know that many families are struggling, there’s evidence that the pandemic has actually helped the financial profile of many middle-income families that were able to continue working through the past year. The pandemic meant that more people cooked at home, saving money. And who needed trendy work clothes when sweats would do?

As a result, Experian says, the average FICO credit score in the United States reached a record high: 710. Score increases were largely driven by a drop in credit utilization rates, the percentage of available credit being used. As consumers shopped less, and used this opportunity to pay down balances, their scores improved. (Credit utilization counts for about 30% of your credit score.)

The latest Experian data is from the end of the third quarter of 2020. It does not reflect the two most recent stimulus payments, $600 in January and the $1,400 that is now arriving in bank accounts. So the big question is whether consumers will use this newfound money to pay down more credit card debt or go on a much-deferred spending binge as the economy reopens.

May I strongly recommend that you use this opportunity and any spare cash from the stimulus payments or your return to work to make a big dent in your credit card debt? After all, the national average interest rate on credit card balances is about 18% — and many people are paying much higher rates! Paying down debt is a sure winner — versus speculating in the stock market, which many are tempted to do these days.

Understanding Your Score
Your credit score is just a shortcut analysis of your credit history that is used by banks, finance companies and credit card issuers to price the risk of granting credit to you. The “price” of that risk is the interest rate you pay on your borrowings, which can add significantly to the overall cost of your purchase. But credit scores are also used to price auto and homeowner’s insurance, and even in employment hiring decisions.

The best known, and most often used, is the FICO score. It’s important to understand what you can — and can’t — do to increase your credit score. (Trivia question: Why is it called a FICO score? It’s named after the data analytics company that created it — Fair Isaac Corporation!)

Credit longevity is not something you have control over — except to note that you don’t want to close your longest-held card, even after you’ve paid off the balance. But there are some ways to improve your credit in a major way.

Paying off your outstanding balances is the No. 1 way to boost your credit score. Another key factor is paying your bills on time, even if you’re making only the minimum payments. Late payments (delinquencies) can really lower your score.

Some people have low scores because they simply don’t have enough credit “reported” to the bureaus to build that track record. Experian has come up with a free program, Experian Boost, to help people in this situation. It lets people connect their bank or credit card accounts and choose the bill payments they want to add to their Experian credit file.

For example, suppose you never miss a payment on your Netflix account. That good payment record isn’t typically reported by Netflix to the credit bureaus. Now it can now be broken out and added to your credit report and credit score. Experian notes reports that, on average, consumers saw a 13-point lift in their scores by adding these types of payments to their credit report.

This is the moment of decision about your credit. Can you restrain your spending and pay down more debt? It’s a choice that will have a big impact on your financial future. And that’s The Savage Truth.