What is the average credit score in America?

Understanding Credit Scores: An Overview

Credit scores are numerical representations of your creditworthiness, indicating the likelihood of you repaying debts. Lenders use them to assess risk when considering loan applications, credit card approvals, and even rental agreements. A higher credit score typically translates to better interest rates and more favorable terms. In the United States, two primary credit scoring models are widely used: FICO and VantageScore.

FICO Score: The Industry Standard

The FICO (Fair Isaac Corporation) score is the most commonly used credit scoring model by lenders. It ranges from 300 to 850, with higher scores indicating lower risk. FICO scores are based on information in your credit reports from the three major credit bureaus: Experian, Equifax, and TransUnion. Different versions of the FICO score exist, but the general principles remain the same.

VantageScore: An Alternative Model

VantageScore is a credit scoring model developed by the three major credit bureaus to provide an alternative to the FICO score. It also ranges from 300 to 850. While VantageScore aims to be more inclusive and accessible, its adoption among lenders varies. VantageScore is frequently used by credit monitoring services to give consumers an idea of their credit health. It is also updated more frequently than FICO.

The National Average Credit Score in America

The average credit score in the United States fluctuates over time based on economic conditions, consumer behavior, and reporting changes. As of late 2023/early 2024, the average FICO score in the United States hovers around 715-718. The average VantageScore is slightly lower, typically around 698.

It's important to note that these are just averages. Your individual credit score may be significantly higher or lower depending on your specific credit history and financial habits. Furthermore, these numbers are constantly being updated as new data is analyzed.

Why Does the Average Matter?

Understanding the average credit score provides a benchmark for assessing your own credit health. If your score is significantly below the average, it may indicate areas where you need to improve your credit management. While aiming for the average is a good starting point, striving for a higher score can unlock more financial opportunities.

Credit Score Ranges and Their Implications

Both FICO and VantageScore use similar ranges to categorize credit scores, each with its own implications for borrowing and financial opportunities. Here’s a breakdown:

• Exceptional (800-850): This range indicates excellent credit management. Individuals with scores in this range typically qualify for the best interest rates and loan terms.
• Very Good (740-799): A very good score demonstrates responsible credit behavior. Borrowers in this range are likely to receive favorable interest rates and terms.
• Good (670-739): A good credit score is considered above average and generally qualifies you for most loans and credit cards. However, the interest rates may be slightly higher than those offered to borrowers with exceptional or very good scores.
• Fair (580-669): A fair credit score indicates some credit challenges in the past. Borrowers in this range may face higher interest rates and may have difficulty getting approved for certain loans or credit cards.
• Poor (300-579): A poor credit score suggests significant credit problems. Borrowers in this range may have difficulty obtaining credit and, if approved, will likely face very high interest rates and fees. This range often involves a history of missed payments, defaults, or even bankruptcy.

The Impact of Your Credit Score

Your credit score impacts various aspects of your financial life, including:

• Loan Approval: Lenders use your credit score to determine whether to approve your loan application.
• Interest Rates: A higher credit score typically results in lower interest rates on loans and credit cards, saving you money over time.
• Credit Card Offers: Individuals with good to excellent credit scores are more likely to receive offers for rewards credit cards and other benefits.
• Insurance Premiums: In some states, insurance companies may use credit scores to determine insurance premiums.
• Rental Agreements: Landlords often check credit scores as part of the application process.
• Employment: Some employers may check credit scores as part of a background check, particularly for positions involving financial responsibility.

Factors Influencing Your Credit Score

Several factors contribute to your credit score, and understanding these factors is crucial for managing and improving your credit health. Here’s a breakdown of the key components:

Payment History (35% of FICO Score)

Payment history is the most significant factor influencing your credit score. Making timely payments on all your debts, including credit cards, loans, and utility bills, is essential for building a positive payment history. Late payments, missed payments, and defaults can significantly lower your score. The longer the history of on-time payments, the better.

Amounts Owed (30% of FICO Score)

Amounts owed, also known as credit utilization, refers to the amount of credit you are using compared to your total available credit. Keeping your credit utilization low (ideally below 30%) demonstrates responsible credit management. Maxing out your credit cards can negatively impact your score, even if you make timely payments. For example, if you have a credit card with a $1,000 limit, try to keep your balance below $300.

Length of Credit History (15% of FICO Score)

The length of your credit history also plays a role in determining your credit score. A longer credit history generally indicates a more stable credit profile. If you are new to credit, it’s important to open accounts responsibly and build a positive credit history over time. Don't close old credit accounts, even if you don't use them frequently, as they contribute to your overall credit history.

Credit Mix (10% of FICO Score)

Having a mix of different types of credit accounts, such as credit cards, installment loans (e.g., auto loans, student loans), and mortgages, can positively impact your credit score. A diverse credit mix demonstrates your ability to manage different types of debt responsibly. However, avoid opening multiple accounts just for the sake of diversification; focus on managing the accounts you have responsibly.

New Credit (10% of FICO Score)

Opening too many new credit accounts in a short period can negatively impact your credit score. Each time you apply for credit, it triggers a hard inquiry on your credit report, which can lower your score slightly. Furthermore, opening multiple new accounts can make it harder to manage your credit and potentially lead to overspending.

Tips for Improving Your Credit Score

Improving your credit score takes time and consistent effort. Here are some practical steps you can take:

1. Pay Bills on Time: Set up automatic payments or reminders to ensure you never miss a due date.
2. Keep Credit Utilization Low: Aim to keep your credit card balances below 30% of your credit limits.
3. Monitor Your Credit Reports: Check your credit reports regularly for errors and dispute any inaccuracies. You can get a free credit report from each of the three major credit bureaus annually at AnnualCreditReport.com.
4. Become an Authorized User: If you have a friend or family member with a good credit history, consider becoming an authorized user on their credit card account.
5. Avoid Opening Too Many New Accounts: Be selective when applying for new credit and avoid opening multiple accounts in a short period.
6. Consider a Secured Credit Card: If you have a poor credit history, a secured credit card can be a good way to rebuild your credit. Secured credit cards require a cash deposit as collateral.
7. Explore Credit Builder Loans: Credit builder loans are designed to help individuals with limited or poor credit establish a positive credit history.