- Credit scores depend on account history, missing payments, and account number.
- Average credit score data shows that older individuals typically have higher scores.
- Knowing the 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 is known today as the most used and accepted credit score. While FICO provides the credit score algorithm, 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 instrument, debt can be a financial problem,” Griffin says.
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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 as “good”, “very good” or “outstanding”.
- 300-579: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very good
- 800-850: Exceptional
While these numbers serve as a reference, credit practitioners believe the answer is not that simple.
“Scores of 750 or higher will be considered high prime, or very good, and you will likely qualify for the best terms and rates,” says Griffin. “When your scores drop below 680 or so, they begin to fall into a subprime category, which means you may not qualify, and if you do, you will have to pay much higher interest rates.”
Your credit score is based on a number of factors. Payment history is one of the most important components – making payments on time can help your score, while missed payments or filing for bankruptcy 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 the “credit mix” or management of setup accounts (auto loans and mortgages) and revolving accounts (lines of credit) could have a positive impact on credit scores by showing accountability.
When lenders check your credit for loans, mortgages, or credit cards, they have different risk tolerances.
“The score used for auto loans will weigh the information slightly differently than a score developed to predict the risk of repaying the mortgage as agreed,” Griffin says. “Two lenders use exactly the same score, one might say one score is acceptable and another might claim a better score.”
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What is a good credit score for ages?
There isn’t necessarily a “good” credit score to have at one age or another – a good score is a good score. But while age isn’t used to calculate credit scores, the data shows averages tend to rise as credit holders age.
According to American Express, this is because older people simply had more time to establish credit. With an older individual, there is longer account history, more payments to be paid consistently on time, and often more income. Young people who check their credit score might be surprised by a low number, but that doesn’t necessarily mean they’ve 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, so there is nothing to base a score on or use to calculate a score on,” Griffin says.
Averages aren’t a one-size-fits-all statistic, but there appears to be a correlation between age and credit score.
Here are the average FICO scores by age from 2019, according to American Express:
- Age 20-29: 662
- Age 30-39: 673
- Age 40-49: 684
- Age 50-59: 706
- Ages 60+: 749
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How do you check your credit score?
You can get a free credit report 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 may be able to get a free credit score from a credit bureau or by signing up for an bureau’s credit monitoring system.
“Don’t be afraid to check your credit report, it doesn’t affect your credit score,” Griffin says. “If you don’t look at the report, you don’t know what it contains. You can’t do anything about it ”.
What is the difference between a credit score and a credit report?
Credit reports include information on 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, a term paper is like a credit report. Your grade on that sheet is your credit score and the bank is the teacher, who reviews and assigns the grade.
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How do you improve your credit score?
Factors that can contribute to a negative credit score include late payment of more than 30 days and usage rate. The utilization rate is the amount owed divided by the credit limit. A low rate is often a good sign because it means you are using less of your available credit and are keeping track of it without spending too much.
The easiest way to improve your credit score is to know and address risk factors and keep up with payments.
“If you can pay off your credit card balances, you will see an improvement in your credit scores,” says Griffin.
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