What's Considered an Average Credit Score?
A healthy credit score can expand your financial choices and help you secure low interest rates on mortgages, auto loans and credit cards. Credit checks are part of renting an apartment and sometimes even getting a job. A lot is at stake for consumers.
You might be wondering how your credit score stacks up against the average American's.
The average U.S. FICO score is 704, which falls in the "good" credit category. Does that score allow you to borrow money at a lower interest rate for a home or a car? Is a "good" score good enough to rent an apartment? Here's what you need to know.
[Read: Best Credit Cards for Good Credit.]
FICO vs. VantageScore
Answering the question "What's an average credit score?" isn't exactly cut and dried because there are many types of credit scores with their own scoring models. But two models matter the most when you want to borrow money: FICO and VantageScore.
Fair Isaac Corp. developed the FICO score in 1989, and most lenders use it for lending decisions. For that reason, when people talk about credit scores, they're usually referring to FICO scores.
The VantageScore, though used less often, is a widely recognized credit-scoring model. Both models work similarly yet feature a few key differences. For instance, VantageScore penalizes borrowers more for missed mortgage payments than other types of payments, while FICO treats all payments equally. FICO also tends to be more lenient on collection accounts with small balances.
Understanding Credit Score Ranges
Learning what different credit score ranges mean can help you better understand the average credit score.
"Knowing the credit score ranges and the risk levels is important in many aspects of your personal finances," says Richard Best, owner of financial services consulting firm RT Best Consulting and writer for money-saving platform DontPayFull.
The FICO scoring system ranges from 300 to 850. The highest possible score is 850, and the lowest is 300 and a very poor rating.
Julie Marie McDonough, real estate and mortgage broker, credit consultant, and author of "How to Make your Credit Score Soar," says, "Just over 1% of the country has achieved an 850 credit score."
The FICO score ranges break down as follows:
-- "Poor" scores of 579 or lower may have difficulty getting credit.
-- "Fair" scores of 580 to 669 may be approved, but likely at high interest rates.
-- "Good" scores of 670 to 739 may be approved likely at average to low interest rates.
-- "Very good" scores of 740 to 799 have good chances of approval with low interest rates.
-- "Exceptional" scores of 800 or better have excellent chances of approval at the best interest rates.
The latest VantageScore models, 3.0 and 4.0, use score ranges similar to the FICO model. Those scores span from 300 to 850, with lower scores representing higher risk to lenders, and vice versa.
[Read: Best Credit Cards for Fair Credit.]
What Is the Average Credit Score in America?
The average U.S. credit score "continues to change, as does an individual consumer's score over time," McDonough says. But the average depends on the type of credit score.
Average FICO score: The average American's credit score has been on the rise since bottoming out in 2009 after the financial crisis. In fact, the average FICO score has risen four points to a new high of 704, according to the latest FICO analysis. Scores are improving by four to five points year over year for people of all ages.
FICO also found that older Americans tend to have the highest average scores overall. Those ages 60 and older boast an average score of 747.
Average VantageScore: The national average VantageScore in 2018 was 680, according to Experian's State of Credit report, which has tracked this average for the past decade. That's up five points from the previous year.
As with FICO scores, VantageScores took a hit from the Great Recession and are still recovering. On average, scores are still lower than they were in 2008.
Average VantageScores also vary by state, according to Experian. The highest-scoring state is Minnesota, with an average score of 713, followed by South Dakota, Vermont, New Hampshire and Massachusetts, respectively. The lowest-scoring state is Mississippi, with an average score of 652. Louisiana, Nevada, Georgia and Texas round out the bottom five.
Is an Average Credit Score Good?
On the FICO scale, the average credit score of 704 falls within the "good" range. But if your credit is below average, it doesn't have to stay that way.
"In lending, an average or fair credit score will allow a consumer to qualify for general financing, but they (face the threat of) of add-ons to rates and terms for risk," McDonough says.
In other words, an average score means you're likely to be approved for credit, but it'll cost you more than if you have very good or excellent credit. "For those with 800 or greater scores, the benefits are the best possible rates with the most favorable terms," such as no fees or no points, McDonough says.
[Read: Best Starter Credit Cards for Building Credit.]
If your credit score falls in the average range -- or worse, below average -- you can start building better credit over time. Putting in the work now could save you thousands of dollars in the long run.
Here are some ways you can improve your FICO credit score:
Pay bills on time. That goes for more than just credit card and loan bills. Pay all bills on time, including utility, cellphone and other bills that report to credit bureaus monthly. Payment history is the most heavily weighted factor of your FICO score at 35%. If you're worried about missing payment due dates, consider setting up text alerts or autopay.
Keep credit card balances low. The balance of your revolving accounts compared with your credit limits makes up 30% of your FICO score and is the next most important factor. Creditors like to see that you're not relying too heavily on credit, so the less available credit you're using at once, the better. Most experts recommend using 30% or less of your available credit.
Keep your oldest accounts open. Because credit history accounts for 15% of your FICO score, avoid closing long-standing credit accounts as long as they don't cost you anything.
Space out credit applications. New credit represents 10% of your credit score. One red flag that you rely too much on credit is applying for credit too often. Every time you apply for a credit card or loan, a hard inquiry appears on your credit report. One or two inquiries have little effect on your credit score, but a bunch within a two-year period can cause your score to fall. Fortunately, checking your own credit results in a soft credit inquiry, which doesn't affect your credit.
Diversify your credit mix. Credit mix, or the types of credit accounts you've managed, makes up the final 10% of your FICO score. Lenders want to know that you can handle many types, from credit cards to auto loans and mortgages. Never borrow money just to improve your credit score, but explore different financing options as needed to help boost your score over time.
More From US News & World Report