Is Your Credit Better Than Average?
- January 11, 2017
- Posted by: Jeff Gitlen
- Category: Town News
Though many Americans do not want to admit it, one of the most important determinants of financial wellbeing is credit score. Many people only think their credit scores matters when it comes a favorable interest rate on their next credit card or mortgage loan.
However, credit scores have are much more important than that, as these days they are used for everything. Employers have been known to check prospective employees credit scores, while landlords have also been known to check the credit scores of prospective tenants to see if they will be reliable. For many landlords, if your credit score reflects the fact that you have had any repossessions or collections done then you are a risky tenant, and this could affect many things, from whether you qualify for the house to how much deposit you have to pay for services such as electricity.
Regardless of what you may think, our lives are now ruled by our credit scores, and depending on the situation, they could help you or restrict you. However, despite the current economic climate, the average credit score in the country may actually be better than you think.
So what is the Average Credit Score in America?
Despite the fact that the information regarding the average credit score in the country should be quite easy to find, it is actually a very closely guarded secret, though there is general summary available that outlines the things that matter the most. Before we look at the credit score averages, it is important to understand what is taken into account when calculating the scores.
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.
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).
At the moment, the average credit score is actually climbing, which shows that there has been an improvement in the financial climate during the last few years. However, there is still a lot of room for improvement.
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.
As great as it would be to see the average score reach 720, it is important to note that the current national average is the highest since the inception of the credit score. In fact, it is full 8 points higher than it was during the height of the recession in 2010.
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.
Age Affects the Average Credit Score
However, America is a very diverse country, especially when it comes to financial status, and therefore, both Experian and ValuePenguin broke down these averages even further. The organizations broke down credit scores according to age and income, and the results are not very surprising.
As would be expected, credit scores tend to improve with age. For instance, according to ValuePenguin, in the 70 and older age group, over 50% of the population had an average score that was higher than 780. This is in sharp contrast to people under 30, where 38% of the population had an average credit score of under 621.
These discrepancies may be explained by the fact that most retirees are on a tighter budget, and therefore are more careful about their spending. On the other hand, many people under 30 have not had the time to build their credit, and are more likely to spend more money and take out more credit.
Income and the Average Credit Score
However, there is also a correlation between what we make and our credit scores. It may not be surprising to find out that the more people make, the higher their credit scores. This is mainly because the more someone earns, the more likely it is that their credit utilization is going to be lower than 30%, which will inevitably affect their credit score. In addition, low income earners usually find it harder to get high credit limits, which mean that they are more likely to go beyond their credit utilization.
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, your credit score is most likely going to suffer.