A credit score is one of the most crucial concepts in the American economy since it enables the evaluation of how credit-worthy borrowers are on average. Credit scores are a tool that helps lenders get a brief overview of someone’s credit condition and their ability to pay back the money. Being aware of the mean score, you can orient in the state of your credit compared to the other consumers.
Understanding Credit Scores
A credit score refers to a three-digit number ranging between 300 and 850 that is determined based on information regarding an individual’s credit reports as provided by the three big credit reporting companies: Experian, Equifax, and TransUnion. Higher numbers mean lower risk for lenders and more likelihood of trouble repaying debts while lower numbers mean greater risk for lenders and potential of having difficulties in repaying debts.
The majority of scoring models are based on FICO, which is derived from the name of the company – Fair Isaac Corporation.
FICO scores fall into the following general ranges:
- 800-850 = Exceptional
- 740-799 = Very Good
- 670-739 = Good
- 580-669 = Fair
- 300-579 = Very poor
What is Considered Average when it comes to FICO Score?
At the moment the mean FICO score in the United States is 716 for the year 2022. This is the type of claim that is fueled by tens of millions of scores from consumers across the nation that have been computed by Fair Isaac. An index figure of 716 places the average credit seeker in good credit status, though slightly below the very good standard.
Data from Experian’s State of Credit for 2022 table lists the current average national credit score as being even higher at 714. It is higher than all previous years, and average scores tend to rise progressively as the years progress. As recent as 2012, the average FICO score of the population was 689, this is according to data collected across the United States. Higher scores reflect that consumers are in general handling credit better and more and more lenders are extending more credit to consumers with good and excellent credit ratings.
To sum up, the given paper identified several factors that may influence the average score:
Several factors contribute to the average credit score continuing to reach new highs across the U. S. population:
- These are more credit access – There has been a rise in the ease at which credit, in the form of loans or credit cards, is granted to those with good credit ratings in the recent past. This enables many more individuals to engage in the market and actively create and develop satisfactory credit histories.
- Unemployment rate – A high employment rate and minimal unemployment positively influence borrowers and thus higher average credit scores. The possibility of an average score decline is apparent during the recession periods but bounces back when the economic conditions are better.
- Increased credit limits – not only do more consumers receive credit, but more credit limits have been extended too. When consumers have higher credit limits, their credit utilization rates which form most of the FICO scores are improved.
- Consumer awareness - With increased awareness, more Americans are knowledgeable about the effects different credit behaviors have on scores and are inclined to the right behaviors to ensure they have a good credit status. Lender sensitization and consumer awareness campaigns spearheaded by non-governmental organizations have ensured delinquencies and write-off rates come down.
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It is important to note that 716 is the current National average FICO score and that averages can be much higher or lower depending on the state, city, or even region. For instance, some states that score particularly well are; Minnesota, Vermont, New Hampshire, and Washington. Some states with relatively lower averages include MS, LA, AL & TX.
The current average FICO score is higher among the people living in the cities; the highest is recorded in San Jose, California at 732 and Boston, Massachusetts at 731. Another relative low in the big-city average is recorded at Cleveland – 660 and St. Louis – 658.
The fluctuations in the averages of the credit scores also have different patterns over time depending on the area due to variations in the economic environment. Some of the states that were more affected post-2008 financial crisis like Nevada were seriously affected and it took some time to recover.
Generational Differences
There is also an impact of age on the average credit score available for each population type.
Nationwide data shows older generations tend to have higher averages compared to younger consumers:
- Baby Boomers (ages 61–76) - 1,283 Senior Citizens/ Silent Generation (ages 77+) - 759
- Communicators (ages 45-63) - 512/Educators (ages 45-63) - 494*: Baby Boomers (ages 58-76) - 734
- Generation X (Gen X) persons, or those aged between 42 and 57 years, were 705.
- Millennials (27-41 years) – 672
- Gen Z (born 1997 – 2012) (18-26 years) =657
This brings out the fact that older groups achieve higher rewards since they require time and more consistency when establishing their credit records. Still, consistently higher averages observed with each subsequent generation are a sign of improved financial behaviors being developed as people reach the age of 30.
How Good Should Your Credit Score Be?
Given that 716 is the most recent national average, is it possible to say that it is a good credit score? The credit score from 670 to 739 is deemed to be a Good score, as stated by FICO. However, some lenders may consider scores less than 700 as falling under the fair rather than a good FICO score.
In most cases, it is suggested that a borrower should strive to get a score of 700 or even more, and, ideally, 740 or higher to get the best loan and interest rates. In general, the higher the credit score, the better the position of a consumer concerning credit cards and loans such as auto loans, mortgages, etc.
Understanding what affects your credit score, how it is evaluated, and how to manage it.
No matter what the average is nationally or in your state, it is most important to focus on your score and seek to continually improve it over time through healthy credit habits:
- It is recommended that one should check the credit reports once a year and dispute any wrong entries.
- Meet all bills due on time each month
- This is important to keep revolving credit below 30 percent.
- These should be obtained only when necessary and therefore the following policies should be put in place:
- Form positive credit history for several years in its account.
Credit scores above 700 will ensure most of the borrowers get a good chance of being charged a cheaper interest on the loans. The average is kept on rising steadily among consumers in America by the ability of individuals to improve on the national averages in advance of the lifetime borrowing power, while risks are also minimized by the lenders.
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