Your credit score is a vital part of your overall financial health. A good credit score can allow you to get the lowest interest rates on mortgages, auto loans, personal loans, and more. It can also determine whether you qualify for financing at all.
A low credit score, on the other hand, could lead you to get denied for credit, pay exorbitant interest rates, and even turn to payday loans if you desperately need to borrow money.
The average credit score among Americans rose in 2017, yet it's still below what most experts consider a "good" score. So how does your credit compare with the average? Read on to find out -- and to get some tips on what you can do if you're disappointed with your score.
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What's the average credit score in America?
According to a new report from Experian, the average credit score for Americans in 2017 reached 675. That's up from 673 a year prior and the highest average credit score since 2012. Scores did, however, vary by age, as this chart shows.
| Silent Generation | Baby Boomers | Gen X | Gen Y | Gen Z | |
|---|---|---|---|---|---|
| Average VantageScore | 729 | 703 | 658 | 638 | 634 |
Source: Experian.
This average score from the Experian report is based on the VantageScore, which is a credit scoring model first developed in 2006 by the three major credit bureaus -- Equifax, Experian, and TransUnion. The VantageScore method scores on a scale of 300 to 850
On this 850-point scale, Experian indicates that a "good" credit score is above 700, which means the average score for Americans is almost -- but not quite -- considered good credit.
The difference between almost good credit and good credit can be pretty substantial in terms of the rates you're offered. While good credit -- a score between 700 to 759 -- could land you a mortgage with a 4.165% interest as of January 2018, according to myFico, a score of 675 would qualify you for a mortgage at a higher rate: 4.556%. On a $300,000 mortgage loan, monthly payments would be around $69 higher with the sub-700 score.
And, once you get into the highest and lowest ranges, the impact your credit score has can be even more dramatic. Scores between 781 and 850 are considered "Superprime," which qualifies borrowers for the very best rates and most competitive financing offers. Scores below 600, on the other hand, are considered deep subprime, which could make it difficult or impossible to secure any type of financing or even rent an apartment or home. Last year, 22.3% of Americans reached that elite Superprime level, while 21.2% were in deep subprime territory.
How can you improve your credit?
Wherever your score falls on the scale, there's almost always room for improvement. Fortunately, there are plenty of ways to raise your credit score, including:
- Making all payments on time: This is the single most important factor in your credit score. According to Equifax, just one late payment can reduce a "great" score (a score of 780 or higher) by up to 110 points and a "fair" score (a score of about 680) by as much as 80 points.
- Asking for a goodwill adjustment: If you have a late payment on your credit report, asking for a goodwill adjustment could potentially lead to its removal. Many creditors will remove the late payment upon written request, especially if it was a one-time mistake and you've generally been timely with your payments.
- Paying down debt: If you use too much of your available credit, your score could be reduced. Ideally, you should keep your credit utilization to no more than 30% of available credit. If you have a $10,000 credit limit, you shouldn't have a balance of more than $3,000. Of course, having no balance at all would be best both to avoid interest and to keep your score as high as possible.
- Having a mix of different kinds of credit. While you don't need to carry a balance to get a good credit score, you do need to use credit so you can develop a history of responsible payments. Ideally, you should have a blend of different kinds of credit such as credit cards, car loans, and a mortgage -- but don't take out a loan solely to enhance your credit mix.
- Avoiding taking too many new loans: When you apply for credit, an inquiry is placed on your credit report, and it stays there for two years. Too many inquiries can lower your credit score. The average age of your credit accounts is also a factor, and if you take on a lot of new debt, that average will be reduced, lowering your score.
Building credit can take time, but it's worth the effort, as bad credit can cost you thousands or tens of thousands of dollars over your lifetime in the form of higher interest payments on mortgages, car loans, credit cards, and more.
Don't settle for average
By using credit responsibly and avoiding behaviors that hurt your score -- like paying late or maxing out your credit cards -- you can beat the average score, and you may even join the ranks of the elite Superprime borrowers (if you aren't there already).
