A lot of people think they have a low credit score, but only 31% of Americans actually do. The average credit score in America is currently 710 (FICO score, that is), according to Experian.
If you're wondering how your own credit score stacks up to that number, you should check your credit score for free by accessing your free annual credit report here.
Once you understand what your rating is in relation to the average credit score, it’s important to understand how that impacts your ability to build wealth. For example, if your score is in the 650-699 range, you could be denied for certain loans or mortgages. If it’s between the 500-649 range, it’s going to be tough to apply for most credit cards and mortgage loans.
While this is unfortunate, it can have long-term impacts on your ability to build a solid financial foundation. So, what’s your number in relation to the average credit score in America? And, why does it matter? We'll answer all those questions and more!
Do you learn better by watching videos? Click here to view our mini video lesson on understanding your personal capital structure. It’ll help you better understand the role your credit score plays in your overall financial fitness.
What is a Credit Score & Why Does it Matter?
What is a credit score? It is a number that is designed to predict your likelihood of paying back a loan, like an auto loan or mortgage.
The higher your score is, the better chance you'll have of getting approved for loans and mortgages with competitive interest rates and terms, which are often much better than what you can get without a good credit history.
Why does your credit score matter? It’s the foundation of your finances and future wealth! If you want to have access to credit in order to purchase something standard like a car or take out a mortgage loan, you need to play by the powers that be's rules. And one of those rules says that anyone with bad or no credit needs to pay higher interest rates than people who do have good credit.
So, how much can you lose on interest by having poor credit? It’s hard to say, because there are so many lending options in America, and the interest rate offered depends on factors like your income and how much of a risk lenders see you as.
For example, if you have poor credit, it will be impossible for you to get approved for loans with standard interest rates - which can go up to rates as high as 30% or more. Of course, if you have great credit and an income, someone like that could get a mortgage for just 2%.
So how do you avoid paying these higher rates? Well, there's only one real option: Get your credit score up to good levels by consistently paying your bills on time - every month.
What Affects Your Score?
There are five main factors that affect your score, which we go into more in-depth in our article What Affects Your Credit Score? For a full, comprehensive breakdown of the factors, head over there to learn more.
At a basic level, however, the five factors are:
- Payment History: If you're paying your bills late or skipping out on them altogether, it will definitely hurt your credit score. The best thing to do here is to make a payment schedule and stick to it so that you don't miss out on any payments.
- Amount Owed: In terms of credit, amounts owed refers to the amount of debt you currently have. Be careful to keep the amount of debt at a reasonable and manageable level so that you can easily pay it off each month. The lower the better!
- Credit History Length: If you have no credit history - If this is the case, then you're missing out on some valuable points! Your goal should be to build your credit history as soon as possible.
- Credit Mix: A credit mix is the combination of credit types that you currently have. Utilizing different kinds of credit (like revolving lines-of-credit, installment loans, etc.) will help reinforce your overall score.
- New Credit (Hard Inquiries): "New credit" is the amount of credit accounts that you've opened within a given time frame. This generally includes any new cards, loans or lines-of-credit. On the other hand, a "hard inquiry" is generated when applying for a loan or line of credit.
Overall, payment history and amount owed account for roughly 65% of your credit score, so it’s definitely worth checking into those two areas if your credit score is significantly lower than the average credit rating in America.
The Average American’s Credit Rating
Before we dive into numbers, it’s important to understand that credit scores aren’t everything when it comes to finance; they’re simply a snapshot of a few areas of your finances. If your score is lower than the average, don’t freak out! This should just be used as a base to figure out where you currently stand.
The Average Credit Score by Age
Americans over the age of 75 have the highest credit scores in the country. However, when you break down the average credit score by age, other age groups aren’t far behind. As you can imagine, the average credit score by age group drops slightly as individuals get younger.
For example, Americans over the age of 75 have an average score of 758, and Baby Boomers (ages 56-74) have an average score of 736. That’s not too far off. Americans between the ages of 40-55 are the first age group that dips below 700, with an average score of 698.
They are followed by Millennials (24-39) with an average rating of 679 and Generation Z (18-23) with an average score of 674. This is quite impressive given that most credit reporting agencies qualify 674 as “good.”
The Average Credit Score by State
What state has the highest average credit score? Wisconsin topped last year’s list with its population having an average credit score of 739. Which state’s population has the lowest average credit rating compared to the rest of the country? Mississippi, unfortunately. The average was 675.
Other states where the average credit score is slightly high include Washington (730), South Dakota (731), North Dakota (730), New Hampshire (729), and Massachusetts (729).
Other states where the average credit score is slightly low include Texas (688), South Carolina (689), Oklahoma (690), Louisiana (684), Georgia (689), and Alabama (686).
Tips on How to Increase Your Credit Rating
It can be frustrating to hear that you have a low credit score, but remember that this is just one measurement of your overall standing in the financial world. There are many other factors that contribute to your financial health, and we'd like to help you improve those as well.
While Wealth Stack is an investing app at heart, we are focused on helping individuals access free financial courses. You deserve access to information that will help you get out of debt, improve your score, and more.
If you’re ready to start investing in yourself, download the Wealth Stack app today to get started. It’s free and engaging. All you have to do is create an account and then start learning from our free video courses. Then, put that knowledge to good use!