Credit Scores Have Stopped Rising. Here's Why That's a Problem

Credit scores are leveling off, and that could mean borrowers will face higher costs in the near term.

The average American's credit score right now is a 716. According to FICO, that score is considered "good." And good is, well, good.

But it turns out an average credit score of 716 isn't so great in context this year. The reason? For the first time in over a decade, the average U.S. credit score did not increase from the previous year. And that could spell trouble for people who are looking to borrow money in the near term.

When good isn't good enough

FICO scores range from 300 to 850. If you have perfect credit, it generally means you'll get the best borrowing rate a given lender is offering. But if your score is a 300, you can pretty much bet that any loan application you submit will be rejected in short order.

Most people, however, don't have perfect credit, nor do they have a score of 300. Rather, they fall somewhere in the middle, such as into the "good" range.

But at a time when borrowing costs are so high, it's better to be in the "very good" or "excellent" range. And the average consumer isn't there.

FICO considers a score to be very good if it falls between 740 and 799. And scores of 800 or more are excellent. It's borrowers in these ranges who are likely to see the best rates when they apply for a personal loan, auto loan, or any other lump sum of money. Consumers with very good or excellent credit may also be more likely to qualify for the most appealing credit card offers -- cards that offer a world of cash back and other perks.

How to boost your credit score

If you have a credit score of 716, don't panic. That is definitely not a bad score by any means. If you have that score, there's a good chance you'll end up qualifying for a loan when you need one. But you may not get the lowest interest rate a given lender can offer.

That's why it pays to work on boosting your credit score if it's stuck in "good" territory. And one of the most effective ways to go about that is to pay all bills on time. That's because your payment history carries more weight than any other factor used to calculate your score. In fact, it makes up 35% of your FICO score.

It will also help to pay off a chunk of credit card debt if you have a high balance relative to your total spending limit. This should bring your credit utilization ratio down.

That may be difficult if money is tight, though. In that case, another solution is to ask your credit card company for a credit limit increase but pledge not to add to your balance.

Finally, make a point to check your credit report thoroughly. You're entitled to a free weekly copy for another year. If you spot an error that works against you, such as a delinquent debt that was never yours to begin with, getting it wiped from your credit report could give your score a nice lift.

It's encouraging to see that the average consumer has good credit. But why settle for good when you can aim for excellent and enjoy savings the next time you need to borrow?