Credit Score Statistics in the US: Three Numbers to Know
There two common types of credit score in the U.S. are FICO score and VantageScore. The FICO was created in the 1950s in an effort to reduce the subjectivity that went into every loan. For most folks, the only way to borrow money was to walk into their local bank and sit down with a loan officer who made the final decision. He (and it was always a ‘he’) looked at their information and the basic credit history, maybe asked a few clarifying questions – but in the end, it came down to his personal judgement.
That meant that the same flawed human intuition that goes into deciding who to date, who to hire, or who to trust, dictated who could buy a home or finance a business. It meant that women and minorities were largely out of luck no matter how solid their finances or how reasonable their requests, while allowing gregarious white males to regularly have their way with the bank’s resources.
Did You Know?
Before we dive into specific credit score statistics, here are a few things many of us may not realize about credit scores, where they come from, and how they’re used.
Your credit score can dramatically impact how much interest you pay over the life of a loan. For major purchases like a home or vehicle, your score can result in a difference of thousands of dollars.
Your credit score is often used to gauge your reliability when applying for a job, renting an apartment, or purchasing insurance. That’s not what credit scores were designed for, but they’re nevertheless regularly utilized for these and other purposes.
The average credit score of American consumers has been rising over the past decade. From a consistent 690 in 2007, 2008, and 2009, the average FICO score for Americans with a credit history recently topped 700 and at the moment is around 704.
You don’t have just one “credit score,” nor is all credit reporting the same. Your credit score is a 3-digit number calculated in slightly different ways for different purposes, sometimes from different personal credit score statistics. All credit scores depend on context - purpose, timing and source.
It doesn’t take decades to dramatically improve your credit score, but neither are there “quick-and-easy” solutions to overnight transformation. Improving your credit score is about educating yourself and making some consistent, basic changes in how you manage debt.
The credit report of the average American turns up 14 credit accounts and 5 credit cards throughout their financial life.
While you never want to borrow money to “plug holes” in your monthly budget, sometimes you can improve your credit score with a personal loan. Consolidate your debt at a better interest rate.
If you have a limited credit history, either because you’re young or because you pay cash for everything, it’s still possible to build a good credit history and a strong credit score. Good credit doesn’t mean you have to take on bad debt. It means you have options when you want or need to reach beyond what’s in your back pocket right this moment.
Regularly checking your credit report is one of the best ways to guard against ID theft.
Credit Score Statistics In the US: Different Approach
We looked a few weeks ago at credit score statistics showing the percentages of Americans in each credit score category (‘very good’, ‘good’, ‘poor’, etc.) for both FICO and VantageScore, along with other credit score basics.
Let’s take a different approach this time and focus on age groups. We’ll use VantageScore, since last time we based most of our discussion on FICO scores:
The “Silent Generation” (1925 – 1945). Average Score: 760
Not surprisingly, this is a group with a high overall score. Part of this is simply a function of age – they’ve been around long enough to have borrowed and repaid more than most of us, and are more likely to have paid off their homes. This is also the generation whose parents experienced the Great Depression. The work ethic and frugality which came out of that decade isn’t something easily left behind simply because times got better.
Baby Boomers (1946 – 1966). Average Score: 742
Not bad at all. We hear a great deal about “Boomers” and their solid work ethic, patriotic zeal, etc. Like the generation before them, they’ve had time to utilize and resolve a wide range of credit types and are likely to own their own homes. Many are retired or close to retirement. While their average credit rating is impressive, they have the highest average number of active credit cards as well at 5.5.
Generation X (1967 – 1981). Average Score: 706
Did you notice the plunge between generations?
While this isn’t the place for an extended sociological study, it’s worth nothing that Generation X was the group for which we first developed terms like “latchkey children” – with both parents working, or living with only one parent, they were more likely to be home alone. They were born during the “sexual revolution” and a time in which the government started cutting programs aimed at helping children in order to finance programs helping the other end of our aging population.
In other words, let’s cut them some slack, shall we?
Millennials (1982 – 1995). Average Score: 687
Millennials take a lot of heat in popular culture, much of it undeserved. While their scores trend lower, they’re also younger. Many simply haven’t been alive long enough to have paid off multiple cars or trucks or to own their homes. They also carry substantially less debt than older generations.
Some of this may be due to the same age factor which limits their credit history, but it’s also a function of mindset – this is a generation who grew up concerned about debt along with other long-term issues. As a result, they’re more likely to be involved in social causes and environmental movements.
Generation Z (1996 - 2010). Average Score: 679
Only a few points below their elder’s averages, this is the only group with lower debt and fewer credit cards than Millennials. Then again, some of them can’t legally drive yet, so there’s that.
Do Average FICO Scores Vary From Place to Place?
They absolutely do. They can be broken down by age, race, income level, and any number of other factors as well.
Here are the five states with the highest average FICO scores:
Minnesota: 739
Wisconsin: 732
South Dakota: 731
Vermont: 731
North Dakota: 730
Here are the five states with the lowest average FICO scores:
Mississippi: 675
Louisiana: 684
Alabama: 686
Texas: 688
Georgia: 689
You no doubt immediately noticed that the states with the lowest FICO average tend to be in the South. They're mostly states known for spending less on public education and offering fewer social services. As a result, their state economies are more likely to be unstable than states in the top five, which likely contributes to statistics like these. Of course, when it comes to credit score statistics, like any statistics, the full picture is no doubt more complex.
You’ve probably been wondering why I called this post “Credit Score Statistics in the US: Three Numbers to Know.” The credit score statistics part is hopefully pretty obvious by now, but what are the “three numbers”? Did I mean your FICO score? Vantagescore? Your likely interest rate? Where you fall on the overall scale? Maybe one of the numbers I meant was ours – how can you call us to get started on raising your credit score or getting connected to the right legit online lender for you?
According to Nicholas Pell, writing for The Street, that’s when the first signs of credit revolution appeared:
Enter Bill Fair and Earl Isaac. These two statisticians made a number of correlations between which behaviors made a person a good credit risk and which made them a bad credit risk. And for the most part, their predictions were accurate. But it wasn’t really until the 1970s that credit scores became as important in lending as they are now. The modern iteration of the FICO score, based on credit files from the three credit bureaus — Equifax, Experian and TransUnion — was introduced in 1989.
The new, 3-digit FICO (Fair Isaac Corporation) “credit score” caught fire at a time when lending and credit were dramatically expanding across the United States. Laws were changing which allowed new players into the credit card game, and debt and borrowing were becoming a badge of honor among middle class couples rather than a necessary, but almost shameful, reality of 20th century life.
On the one hand, a credit score is gender-free, race-free, religion-free, and otherwise unbiased. Credit scores by themselves are untethered to social or political baggage or biases. Unlike most people who make the claim, these 3-digit numbers truly “don’t see color” (or gender, or faith, etc.).
It’s that same lack of context, however, which may be their weakness. My poor credit score and your poor credit score don’t make us the same person, or even the same risk. My low score might reflect careless choices, overspending, my inability to hold a job, or any number of other factors making me a poor risk to lenders. Yours might reflect unexpected medical expenses for a loved one, or a noble effort at entrepreneurship which struggled for a few years before collapsing and exhausting your resources. You may have a rocky credit rating but still be a great risk, but lenders will only know this if they’re willing to look beyond that 3-digit number.
What Goes Into Your FICO Score?
We can discuss with great certainty the five elements of your FICO rating and the percentages used to weigh each one. After that, our insights into credit score statistics falter a bit, as FICO is understandably protective of the exact processes and scoring they use within each element to compute that final score.
35% of your FICO score is determined by your payment history
Do you pay your bills on time? If you’re periodically late, how late are you? How often are you late? You want to raise your credit score? This part’s pretty straightforward…
Pay what you owe. On time.
Timely payment doesn’t necessarily earn you points, but late payments dock you. This is true whether we’re talking credit cards, rent, or even those student loans that we keep hearing about in the news.
30% is based on your “utilization ratio.”
This is one of those fancy terms we love in credit score statistics. In this case, it simply means that whoever’s computing your score looks at the total amount of credit you have available and compares it to how much you’re currently using.
For example, if you have a credit card with a maximum limit of $5,000 on it, and at the moment your balance on your card is $4,875, that won’t do your credit score any favors. You’re essentially maxed out on your credit card! No more credit for you! On the other hand, if you have that same $5,000 limit and a current balance of $1,200, which you pay regularly, your have a great “utilization ratio.”
This is why some financial advisors suggest you keep your cards active and open, even if you pay them off and don’t plan on using them again. It gives you “available credit” you’re not utilizing, meaning you have a better credit score.
15% of your FICO score is based on the length of your credit history
How long have you been borrowing and paying stuff back? Not surprisingly, older Americans have higher credit scores on average than younger Americans. While it’s possible that some of this is generational – maybe your grandparents are more responsible with their money than your parents, who are in turn more methodical and risk-averse than you – some of it’s simply a matter of having been alive longer.
10% involves what they call your “credit mix.”
This is another fancy credit score statistics term, but the idea itself isn’t so very complicated. Lenders feel better if you have a history of borrowing and repaying on a variety of things – maybe a department store card or two, a home equity loan, a few cars over the years, a personal loan to pay off some medical debt, etc. It’s like looking for a range of work experience before hiring someone for a job; the more they’ve done, the more you figure they can do.
The remaining 10% is based on how many recent efforts you’ve made to open new lines of credit
Normal loans here and there are no problem; sudden flurries of activity just before you’ve come to them makes lenders nervous. A personal loan, for example, can lower your overall score it’s fairly recent. On the other hand, if you took it out over a year ago, and have since been paying it back regularly – or perhaps have already paid it in full – a personal loan can help improve your credit. It’s all about context and the lender’s effort to determine your reliability.
What Determines Your VantageScore?
You probably know that there are three major credit reporting agencies – Experian, Equifax, and TransUnion. Although they’re competitors, they came together in 2006 to revise the FICO system and create their own version of the 3-digit credit score. The result was the VantageScore.
The goal of the VantageScore is the same as that of the FICO – a simple, stripped-down assessment of an individual’s sometimes complex credit history to make an informed and unbiased assessment of their current credit-worthiness. The three agencies sharing joint ownership of the VantageScore system simply have a slightly different method for computing that score.
That’s not the only difference between the two systems. Your FICO score is computed as requested, often by one of these same three credit agencies. The resulting 3-digit number may vary, however, depending on which agency is doing the computing. While they all use FICO’s model to compute a FICO score, different agencies may have different information reported to them. That local department store card you’re having trouble paying off may have reported you to Equifax but not TransUnion, or your landlord may do business with Experian and TransUnion but not Equifax. When the information is different, the results might be slightly different as well.
Just to keep things interesting, the lender requesting that the FICO report often has its own tweaks to the results. Auto lenders, for example, may adjust the resulting score up or down based on how much of your credit history involves vehicle purchases. They like good credit as much as anyone else, but if you have a slightly lower score due to medical bills or credit cards, but you’ve always paid your truck payments, they’ll bump their internal version of your credit score accordingly.
The same is true in reverse. Maybe you’ve applied for a new credit card with lower interest than the two or three currently in your wallet. You have decent credit, but the lender notes on your report that while you always seem to make your house and truck payments, you’ve been in the 60+ days late category several times on your existing cards, and in the 90+ late twice a few years ago. Their internal version of your score just went down.
VantageScore claims to be far more consistent across agencies, however, due to something they call “characteristic leveling.” Their goal is to produce the same VantageScore no matter who asks or which agency is consulted. Whether or not they’ve been entirely successful at this depends on who you ask.
How Is My VantageScore Different from my FICO Score?
Let’s look at the differences in how the VantageScore is computed.
40% of your VantageScore is based on your payment history, compared to 35% for your FICO score. The assumption in both cases is that if you’re either unable or unwilling to pay your existing bills on time, you’re not likely to pay new lenders any more consistently.
21% comes from your “depth of credit.” This is yet another fancy credit score statistics term which is similar to combining your “length of credit history” and “credit mix” from your FICO score. In both cases, the computation is trying to anticipate your reliability and consistency over time in a variety of credit situations.
20% is based on your “utilization of credit.” This is 10% less than the FICO computation, but still a significant factor. If you have existing credit available but not fully tapped, it suggests stability and a certain amount of “wiggle room” should you have a rough month or two along the way.
11% of your VantageScore considers how much you currently owe. This is the first major deviation from the FICO approach, which doesn’t directly factor this one in at all. Substantial existing debt lowers your score for obvious reasons, even if you have a good track record for timely repayment.
5% is shaped by “recent credit,” meaning essentially the same thing FICO computes at 10%. It’s important in both cases to distinguish between “hard inquiries” and “soft inquiries.” “Hard inquiries” are made when you’re actually attempting to borrow money, whether the goal is to purchase a vehicle, refinance a home, consolidate medical bills, or even open a new department store card. These impact your credit score under either system. “Soft inquires” are passive checks of the sort done when you’re checking your own credit score, applying for a job, looking to rent an apartment, etc. A “hard inquiry” requires your express written permission; a “soft inquiry” can be done by pretty much anyone subscribed to a credit reporting service.
The final 3% is based on your available credit in dollar terms. Like the 11% based on how much you currently owe, this is an element of the VantageScore with no direct corollary in the FICO version. It’s certainly related to “utilization,” but more concerned with actual amounts rather than percentages.
There are other differences in terms of how each score weights specific events or types of debt, but that’s a level of credit score statistics not all that essential for most of us to explore at the moment. What we really care about is how our score(s) impact our ability to accomplish our financial and personal goals.
Conclusion
I didn’t mean any of that, although none of those are bad things to know. Out of all of these credit score statistics, here are the three numbers I think you should know:
What was your credit score six months ago?
What is your credit score now?
What would you like your score to be six months from now (and what do you think it would take to get there)?
There are objective guidelines about what counts as a “good credit score,” but I prefer to think of it in more personal terms. I can’t help what Harold at the office is doing or fully explain why everything he touches seems to turn to gold even though he’s so irritating. I can help my personal debt-to-income ratio and how effectively I manage my own household budget.
I can reduce my own credit card debt. I can be intentional about timely payments, even on monthly utility bills or minimum payments on last year’s hospital visit. I can insist lenders compete for my business instead of waiting for me to come to them hat-in-hand like Oliver asking for another serving of gruel. And so can you. Let us know if we can help.