- Credit scores depend on account history, missing payments and number of accounts.
- Average credit score data shows that older individuals typically have higher scores.
- Learning about risk factors and how credit reports are created can help improve your score.
Credit scores dominate spending and decisions, but few people know the ins and outs of this looming figure.
FICO created the first credit scoring model in 1989, and it is known today as the most widely used and accepted credit score. While FICO provides the algorithm for the credit score, the three major credit bureaus—Equifax, Experian, and TransUnion—provide data for credit reports.
Rod Griffin, senior director of consumer education and attorney at Experian, suggests creating a plan before opening a line of credit.
“Credit is a financial tool, debt can be a financial problem,” says Griffin.
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What is considered a good credit score?
According to Experian, about 67% of Americans have a FICO credit score of 670 and above, ranking them “good,” “very good,” or “exceptional.”
- 300-579: min
- 580-669: Fair
- 670-739: Good
- 740-799: Very good
- 800-850: exceptional
While these numbers serve as a baseline, those in the credit business feel the answer is not so simple.
“Scores of 750 or more will be considered high prime, or very good, and you’ll likely qualify for the best terms and rates,” says Griffin. “If your scores drop below 680 or so, they start falling into a subprime category, meaning you may not qualify, and if you do, you will have to pay much higher interest rates.”
Credit score is based on a number of factors. Payment history is one of the biggest components – making payments on time can help your score, while missing payments or filing for bankruptcy will hurt your score. Recently opened accounts, applying for new accounts and how old your accounts are can affect your credit score. Experian also writes that “credit mix,” or managing payment accounts (car loans and mortgages) and revolving accounts (lines of credit) can have a positive effect on credit scores by showing responsibility.
When lenders check your credit for loans, mortgages or credit cards, they have different risk tolerances.
“The score used for auto loans will weight information a little differently than a score developed to predict the risk that you will repay your mortgage as agreed,” says Griffin. “Two lenders use the exact same score, one may say one score is acceptable, and another may require a better score.”
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What is a good credit score by age?
There is not necessarily a “good” credit score to have at any age – a good score is a good score. But while age is not used to calculate credit scores, data shows that averages trend upward as credit holders age.
According to American Express, this is because older people simply have more time to establish credit. With an older individual, there is a longer account history, more payments to consistently pay on time and often a larger income. Young people who check their credit score may be surprised by a low number, but it does not necessarily mean that they have done something wrong.
“They have very little credit history, what we call a thin credit file, or they may have no credit history at all, and so there’s nothing to base a score on or use to calculate a score,” Griffin says.
The averages are not a one-size-fits-all statistic, but there does seem to be a correlation between age and credit score.
Here are the average FICO scores by age in 2019, according to American Express:
- Age 20-29: 662
- Age 30-39: 673
- Age 40-49: 684
- Age 50-59: 706
- Age 60+: 749
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How do you check your credit score?
You can get a free credit report at AnnualCreditReport.com from any of the three credit reporting agencies. But while these credit reports include identification history and personal credit information, they do not include credit scores.
According to the Federal Trade Commission, you may be able to get a free credit score from a credit bureau or by signing up for a bureau’s credit monitoring system.
“Don’t be afraid to check your credit report, it doesn’t affect your credit score,” says Griffin. “If you don’t see the report, you don’t know what it says. You can’t do anything about it.”
What is the difference between a credit score and credit report?
Credit reports contain information about how you use your credit and the financial resources available to you. Credit scores are tools used by lenders to analyze that information.
Griffin uses this analogy: In school, a term paper is like a credit report. Your grade on that paper is the credit score, and the bank is the teacher, assessing and assigning the grade.
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How do you improve your credit score?
Factors that can contribute to a bad credit score include late payments of more than 30 days and utilization rate. Utilization rate is the amount you owe divided by your credit limit. A low rate is often a good sign because it means you’re using less of your available credit and keeping it up by not paying off.
The easiest way to improve your credit score is to know and address risk factors and stay on top of payments.
“If you can pay off your credit card balances, you will see improvement in your credit scores,” says Griffin.
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