How Does Your Credit Score Measure Up?
June 1, 2018
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You’ve probably heard from your parents and teachers that a good credit score is important. But what is good credit for your age and how do you get there?
Read on to find out what the average credit score is for each age group and what you can do to improve your score.
What is a Credit Score?
After your Social Security number, your credit score is the next most important number in your life. It’s what lenders and creditors use to determine how credit-worthy you are.
When you apply for a mortgage, car loan, personal loan, credit card, or even an apartment, the creditor will look at your credit. They want to evaluate how risky you are as a borrower or leasee. If you have bad credit or no credit, they might decide you’re too much of a risk and will refuse to work with you.
When that happens, it can be impossible to get any credit on your own. Or, if you do get approved, you’ll get hit with sky-high interest charges.
How are Credit Scores Determined?
The most commonly used credit score is the FICO score. With FICO, scores range from 300 to 850. The higher the number, the better it is. Borrowers with scores in the high 700’s or 800’s are more likely to get approved for loans and credit cards and get the lowest interest rates.
According to the Fair Isaac Corporation, the organization behind FICO scores, your credit score is determined by the following factors:
Payment history: Your payment history accounts for 35 percent of your score. If you make all of your payments on time, that helps contribute to a high score. By contrast, missing just one payment can cause your score to decrease.
Amount owed: Accounting for 30 percent of your score, this category is the amount of money you owe versus the amount of credit you have. The lower your credit use, the better. For example, if you have a $10,000 credit line and only charged $1,000, your credit would be better than someone with the same credit line who charged $5,000.
Length of credit history: Lenders and creditors like to see several years of credit history. If you’re a new borrower, or have your first credit card after college, your credit history will be short, which can hurt your score. The credit history makes up 15 percent of your score.
Credit mix: Lenders like to see that you can juggle multiple forms of credit, such as credit cards and installment loans. Credit mix makes up 10 percent of your score.
New credit: Accounting for 10 percent of your score, how often you apply for new credit is another factor lenders consider.
Average Credit Scores by Age
Now that you know what a credit score is and how it’s determined, it’s time to find out how you measure up.
According to an analysis that FICO did for Money magazine, the average credit scores by age are as follows:
18-29 years old: 652
30-39 years old: 671
40-49 years old: 685
50-59 years old: 709
Age 60+: 743
The results aren’t surprising. When you’re younger, you likely have a lot of debt, such as student loans or credit card debt. Plus, you probably don’t have much credit history, so creditors only get a snippet of information about you.
As you get older and your credit history matures, your score usually increases. By the time you enter your 50’s, you are more likely to move up to the 700’s.
Of course, these are just the average scores. Poor financial decisions and mistakes — like falling behind on payments, taking on too much debt, and opening multiple accounts — can cause your credit score to plummet, regardless of your age.
How to Boost Your Credit Score
If your credit score is lower than the average for your age group, don’t despair. You can boost your score by following these tips:
Make all payments on time: Set up autopayments to ensure you make all of your payments on time.
Ask friends or family to become an authorized user: If you have friends or family with good credit scores, ask them to add you as an authorized user to their account. You’ll tap into their lengthy credit history, which can boost your score.
Raise your credit limit: Call your credit card companies and ask them to increase your credit limits. By having a larger credit limit, your credit utilization will go down, improving your score.
Apply for a loan: Consider applying for a small personal loan to diversify your credit mix. Don’t use the loan to buy anything unnecessary. Instead, set it aside and make payments on time each month.