Credit Repair

What Is the Average Credit Score?

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When it comes to consumer debt, national debt and the stock market, you don’t always hear great news, if any. But as far as credit scores are concerned, American consumers are doing better than ever — literally.

The average FICO credit score in America climbed to an all-time high this year. In September, FICO announced that the average FICO Score in the U.S. was 704. (FICO is currently the most popular brand of credit scoring used for lending decisions in the United States.)

VantageScore credit scores, another popular credit scoring brand introduced by the three major credit bureaus in 2006, have also been on the rise. Earlier this year Experian revealed that the average VantageScore had reached 675, the highest since 2012.

While both FICO and VantageScore create credit scoring models that are designed to help lenders predict risk, they evaluate the information contained in your credit reports a bit differently. Imagine if you stepped on a scale and weighed yourself in pounds and then stepped on a different scale and weighed yourself in kilograms. That’s a good mental picture of how the two brands of scoring models work similarly, but not exactly the same.

Is having an average credit score good enough?

When it comes to your credit scores, the higher, the better. Earning an average credit score certainly isn’t bad, but is it good enough? The answer depends upon your goal.

Is stretching your hard-earned money as far as possible important to you? If so, and if you want your credit to become a tool you can use to potentially save more, then you need to consider how lenders view your current credit rating.

Sometimes you can qualify for financing with a less-than-average credit rating. You might be able qualify for a personal loan from LendingTree’s marketplace, for example, with credit scores as low as 525. However, you probably will not be eligible for a lender’s best offer unless your credit scores are much higher.

Both FICO and VantageScore credit scores range between 300 and 850. While it isn’t necessary to achieve the perfect 850 credit score, the higher your scores climb, the more likely it is that you may be able to qualify for lower interest rates and better terms from lenders.

The following chart helps to break down the different FICO credit score ranges, according to Experian.

FICO Credit Score Ranges
Credit rating Credit score range
800+ Exceptional FICO Score
740 to 799 Very Good
670 to 739 Good
580 to 669 Fair
579 and lower Poor

Why having good credit matters

Good credit has the ability to both save you money and make your life easier.

Credit expert John Ulzheimer, formerly of FICO and Equifax, describes good credit as an important wealth-building tool. “You’ll end up paying less for loans and credit cards because your interest rates will be lower and your options will include better terms. That means more money stays in your pocket and less of it goes to your lenders,” he said.

Good credit can potentially save you tens of thousands of dollars or more over the course of a lifetime. A study by LendingTree shows a hypothetical example of how someone moving from a “fair credit” score category (580-669) to a “very good credit” score category (740-799) could save more than $45,000 on five different types of loans.

The opportunities to save money with great credit are very real and very valuable.

How your credit scores are determined

Understanding the importance of earning good credit isn’t enough. You also need to understand how your credit scores are calculated.

Credit scoring models like FICO and VantageScore are designed to evaluate the information contained in your credit reports and assign a number which helps future lenders predict your level of risk. The lower your credit risk, the higher your credit scores will be.

When scoring models like FICO and VantageScore evaluate your credit reports, a variety of factors are considered. Here is a general breakdown.

Factors of your credit score
Factor FICO Score weight VantageScore weight
Payment history 35% of your FICO Scores “Extremely influential” over your VantageScores
Amounts owed 30% “Highly influential”
Length of credit history 15% “Highly influential”
Mix of credit accounts 10% “Highly influential”
New credit/credit inquiries 10% “Less influential”

3 tips to improve your credit scores

If you are dissatisfied with the condition of your credit, it may be possible to improve your situation. Here are three tips to help you get started.

1. Avoid negative credit information

Negative information on your credit reports indicates that you may be financially unreliable and, therefore, a higher credit risk for future lenders. Ulzheimer explains that negative information includes, “collections and any evidence that you’ve mismanaged your loans and credit cards.” Any such derogatory information could result in damage to your credit scores.

If you have negative information on your credit reports already, the good news is that it probably has a limited shelf life. The Fair Credit Reporting Act requires for most types of derogatory items to be removed from your credit reports after a period of seven to 10 years. Additionally, even while a negative item remains on your credit reports, the less influence it has on your credit scores as time passes.

2. Watch your credit card debt

If you want to earn great credit scores, Ulzheimer said, “you have to maintain respectable amounts of credit card debt, if any at all. Optimally, you will have low or no balances appearing on your credit reports, but that’s not always realistic. Think lower is always better.”

Credit scoring models pay close attention to how much of your credit limit you’ve used, otherwise known as your revolving utilization ratio. When your credit card utilization remains low, credit scoring models may reward you with more points to be added to your overall credit scores.

What percentage of credit card utilization is best? FICO reveals that high score achievers, those with credit scores at 800 or higher, maintain an average credit card utilization of 12% or lower. VantageScore recommends keeping revolving balances under 30% of your credit limits.

3. Approach new credit with caution

Credit scoring models also consider the average age of accounts on your credit reports (the older, the better) along with how many credit applications you have initiated with lenders (the fewer, the better) during the previous 12 months.

When you apply for too much new credit or open too many new accounts within a short period of time, your credit scores could suffer.

Of course, you don’t need to be afraid to apply for new credit or open a new loan or credit card account whenever it makes good financial sense to do so. However, you should develop the habit of only seeking new credit when necessary.

Ulzheimer reiterates, stating that you should avoid shopping for credit “excessively in order to save a few bucks around the holidays,” and instead “only shop for credit when you actually need it.”

Bottom line

While shooting to earn an average credit score is a great start, don’t stop there. Higher credit scores can lead to more money saved and potentially less stress.

Earning good credit doesn’t happen overnight and, even once you get good credit, it takes consistent, hard work to maintain it. Yet the benefits you can enjoy once you finally achieve good credit make it worth every bit of your effort.


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