- Credit scores depend on account history, missed payments and number of accounts.
- Average credit score data shows that older people generally have higher scores.
- Learning more 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 score model in 1989, and it is known today as the most widely used and accepted credit score. While FICO provides the algorithm for credit score, the three major credit bureaus – Equifax, Experian and TransUnion – provide data for credit reports.
Rod Griffin, senior director of education and consumer advocacy 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 a good credit rating?
According to Experian, about 67% of Americans have a FICO credit score of 670 and above, classifying them as “good”, “very good” or “outstanding”.
- 300-579: Poor
- 580-669: Just
- 670-739: Good
- 740-799: Very good
- 800-850: Exceptional
Although these figures serve as a benchmark, credit professionals believe that the answer is not so simple.
“Scores of 750 or higher will be considered top-notch, or very good, and you’ll likely qualify for the best terms and rates,” says Griffin. “When your scores drop below around 680, they start falling into a subprime category, which means you can’t qualify, and if you do, you’ll have to pay much higher interest rates.”
The credit score is based on a number of factors. Payment history is one of the most important — making payments on time can help your score, while missing payments or declaring bankruptcy hurts your score. Recently opened accounts, the request for new accounts, and the age of your accounts can impact your credit score. Experian also writes that “credit blending,” or managing installment accounts (car loans and mortgages) and revolving accounts (lines of credit) could positively impact credit scores by being responsible.
When lenders check your credit for loans, mortgages, or credit cards, they have different risk tolerances.
“The score used for auto loans will weigh information a little differently than a score developed to predict the risk of you paying off your mortgage as agreed,” says Griffin. “Two lenders use the exact same score, one might say a score is acceptable, and another might demand a better score.”
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What is a good credit score by age?
There isn’t necessarily a “good” credit score to have at any age — a good score is a good score. But although age is not used to calculate credit scores, data shows that averages tend to increase as credit holders age.
According to American Express, this is because older people have simply had more time to establish credit. With an elderly person there is a longer account history, more payments to always pay on time and often more income. Young people checking their credit score may be surprised by a low number, but that doesn’t necessarily mean they’ve done anything wrong.
“They have very little credit history, what we call a thin credit history, 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,” says Griffin.
Averages are not a single statistic, but there seems to be a correlation between age and credit score.
Here are the average FICO scores by age from 2019, according to American Express:
- 20-29 years: 662
- 30-39 years: 673
- 40-49 years: 684
- 50-59 years: 706
- 60 and over: 749
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How do you check your credit score?
You can get a free credit file on AnnualCreditReport.com from each of the three credit reporting agencies. But while these credit reports include identification history and personal credit information, they don’t include credit scores.
According to the Federal Trade Commission, you might be able to get a free credit score with a credit bureau or by registering with 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 look at the report, you don’t know what’s in it. You can’t do anything about it.
What is the difference between a credit score and a 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 this information.
Griffin uses this analogy: in school, an essay is like a credit report. Your rating on this paper is the credit score, and the bank is the teacher, reviewing and assigning the rating.
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How do you improve your credit rating?
Factors that can contribute to a bad credit score include late payments of more than 30 days and usage rate. The 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 track of it by not overspending.
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’ll see an improvement in your credit scores,” says Griffin.
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