You may think you have an average credit score – but do you really? How does your credit score compare to the national average? How about within your age group? Thanks to new information from FICO, you can see where you stand.
The average FICO score reached an all-time high of 704 this year– right in the middle of the good credit range (670-739) according to the credit reporting agency Experian. However, the average clearly shifts upward with age. The youngest age group (ages 18-29) has an average credit score of 659, while the oldest age group (age sixty and older) has an average credit score of 747.
The other age groups follow the same credit score pattern. The 30-39 age group averages 677, the 40-49 age group averages 690, and the 50-59 age group averages 713.
Why would credit scores increase with age?
Credit scores are based on risk assessment. The younger you are, the less information lenders have to assess your risk. You may have responsible habits as a young consumer, but it will take time for your credit score to reflect those habits.
Similarly, if you make an early mistake in your use of credit, it can have a larger impact on your credit score. Payment history is the most important factor in your credit score. If you miss the fourth payment you've ever made in your life, a creditor will be more concerned about your overall ability to repay than if you missed the four-hundredth.
Credit utilization – the amount of credit you're using compared to your credit limit – is the second largest component of your credit score. As they start out on their own, younger consumers are more likely to take on larger debts relative to lower credit limits.
The length of your credit history is the third most important factor in your score. Accounts that have been in good standing for a long time show financial stability and show creditors that you're reliable. Younger consumers can't compete in that regard. If you close such an account, you hurt your credit score in two ways – you'll drop the average age of your credit accounts, and you'll drop your overall credit limit (raising your credit utilization ratio).
Applications for new credit and your credit mix are also components of your score. As you age, you're more likely to acquire different types of debt (mortgages and auto loans as well as credit cards and other revolving debt). Your credit score increases when you've shown the ability to handle different styles of debt and kept requests for new credit to a minimum.
Regardless of your age, there's always room to improve your credit score. Consider all five of the factors above. How could you make changes to acquire a better score? Making all payments on time is important, but you may have to alter your budget to lower your credit utilization and pay down some debts.
Does your credit score seem lower than it should be? Check your credit report with each of the three main credit reporting agencies (Equifax, Experian, and TransUnion). They may contain errors that are dragging your score down – or worse, they may show signs of fraud. Look for any accounts you did not create or unfamiliar charges on existing accounts. If you would like to monitor your credit to prevent identity theft and see your credit reports and scores, join MoneyTips.
Aim for an increase in your credit score next year, whether or not you're ahead of the average in your age group. A higher credit score is a win in either case.
You can check your credit score and read your credit report for free within minutes by joining MoneyTips.