Credit utilization, which measures how a consumer's credit card balances compare with their credit limits (typically expressed as a percentage), increased from 26% in September 2021 to 28% a year later. Inflation and higher interest rates are two factors that continue to drive up credit utilization rates, which has the potential to put downward pressure on FICO® Scores.
As one of the most impactful components of an individual's FICO Score, changes in a consumer's credit utilization ratio can cause their score to rise or fall. Generally, as an individual's credit utilization ratio decreases (or increases), scores improve (or decline). But economic forces can affect both the balances carried on credit cards and the credit limits these cardholders are granted by card issuers. Together, those two numbers comprise the credit utilization ratio.
Average overall credit utilization ratio
Credit card balances, as you'll see in more detail in Experian's 2022 Consumer Credit Review, have increased by 13.2% in the 12 months ending in September 2022, and inflation, as measured by the consumer price index, was 8.2% over that same period.
The sharp increase in average card balances can be attributed to three factors: overall inflation, which made nearly every purchase more costly for consumers; increased spending on goods and services that weren't always available for purchase in 2021; and higher APRs, which increased the interest accruing on existing credit card balances.
Similarly, card limits extended to consumers by lenders are also subject to economic conditions facing lenders. And while the average amount of total credit extended to consumers did increase throughout 2022, at 4.2% it was easily outstripped by the 13.2% card balance increase. Lenders are being more selective about extending credit, according to recent surveys of loan officers conducted by the Federal Reserve.