Is Your Credit Better Than Average?

Though many Americans do not want to admit it, credit score is quite possibly the single most important determinant of financial well being. Many people only think their credit scores matter when it comes to getting a favorable interest rate on a credit card, but there is much more to it.

These days, credit score is used for many different purposes. Employers have been known to check prospective employees credit scores while landlords have done more or less the same for their prospective tenants. It makes perfect sense. After all, credit score is based on your financial history, so a landlord would do well to check up on their customers, especially when monthly payments are involved.

Regardless of what you may think, our lives are ruled by our credit scores, and depending on the situation, they could help you or restrict you. All of that being said, the average credit score in the country may actually be better than you think. Here are more details.

So What is the Average Credit Score in America?

When it comes to credit score determination, there is general outline of different factors that define credit score. Before moving forward, it is important to understand what is taken into account when calculating a credit score.

Your credit score, also known as your FICO (Fair Isaac Corporation) score, ranges from between 300 and 850, and is calculated using the following factors:

1. ​Your payment history, which accounts for 35% of your score
2. ​Your credit utilization, which constitutes 30% of your score
3. ​The length of your credit history, which accounts for 15% of your score
4. ​Your new credit accounts, which constitute 10% of your score
5. A credit mix which accounts for the final 10% of your score

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Therefore, you should have a good credit score if you pay all your bills on time, do not utilize more than 30% of your credit, maintain credit accounts that are in good-standing for extended periods of time, avoid opening or having too many accounts, and have a mix of installment (such as mortgages and auto loans) and revolving loans (such as credit cards).

Though everyone agrees that the credit score has been rising, there are a number of conflicting figures right now. For instance, Experian’s annual “State of Credit” study puts the national average at 673 while ValuePenguin puts the national average at 695 for the FICO score and 671 for the Vantage score. Regardless of the the conflicting numbers, one thing remains the same. The average credit score actually places most Americans within the “average” or “fair” credit range.

Despite new figures coming in, it is comforting to note that there has been an upward trend in relation to prime credit scores (scores between 680 and 850), from 47% of the population in 2005, to 48.9% in 2014. In addition, there has been a downward trend in sub-prime credit scores (scores between 300 and 619) from 36.9% to 34.2% in the same time period.

At the end of the day, your credit score will be determined by how financially responsible you are. If you fail to pay your bills on time, open credit accounts when you do not need to, or default on credit payments, then your credit score is most likely going to suffer. Luckily, it seems that America is improving on all of these obligations on average.