Credit scores play a critical role in determining your financial opportunities, from getting approved for loans to qualifying for the best interest rates. But what is the average credit score, and how does your score compare to others?
Understanding where you stand can help you take steps toward improving your financial health and securing better terms on future loans and credit. In this guide, we’ll explore what the average credit score is, how credit scores are calculated, and why knowing your credit score is essential for financial success.
What is the average credit score?
The average credit score can vary depending on the country and the scoring model used. In the United States, the most commonly used credit score model is the FICO Score.
As of 2023, the average FICO score sits around 714, which falls within the “good” credit range. This represents an increase over the past decade as more people have become financially educated and credit management has improved.
For reference, here are the FICO score ranges:
- 300 – 579: Poor
Individuals with scores in this range are considered high-risk borrowers. Approval for credit or loans will be difficult, and interest rates, if approved, are typically high. - 580 – 669: Fair
Scores in this range indicate some credit risk. Lenders might approve loans or credit, but the terms will be less favorable. - 670 – 739: Good
This is where the average score falls. Borrowers in this range are considered reliable, and they generally qualify for favorable loan terms and lower interest rates. - 740 – 799: Very Good
Scores in this range demonstrate excellent credit management. Borrowers can expect access to better credit offers and very competitive interest rates. - 800 – 850: Exceptional
With a score in this range, borrowers are considered the most reliable, qualifying for the best loan and credit terms available.
Why your credit score matters
Your credit score is essentially a numerical representation of your financial reliability. Lenders use it to assess your risk as a borrower and decide whether to approve you for credit, loans, or mortgages. The higher your score, the more financially trustworthy you appear, leading to:
- Better Interest Rates: lenders offer lower interest rates to individuals with higher credit scores, which can save you thousands of dollars over the life of a loan.
- Higher Loan Approval Rates: a strong credit score makes it easier to get approved for loans, credit cards, and mortgages.
- Increased Access to Financial Products: certain financial products, such as premium credit cards or loans with flexible terms, are only available to individuals with good or excellent credit.
- Better Leasing Opportunities: even landlords and insurance companies use your credit score to evaluate risk, affecting your ability to rent apartments or get insurance at competitive rates.
Knowing the average credit score gives you a benchmark to measure your own financial standing. If your score is below average, improving it could open up more financial opportunities.
How are credit scores calculated?
Credit scores are calculated using several factors from your credit report. Understanding what influences your score can help you identify areas for improvement. Here’s a breakdown of what goes into a FICO score:
- Payment History (35%): This is the most important factor in your credit score. Lenders want to see that you’ve made payments on time consistently. Late or missed payments will significantly impact your score.
- Credit Utilization (30%): This refers to how much of your available credit you’re using. Ideally, you should aim to keep your credit utilization below 30% of your credit limit. High utilization suggests that you’re reliant on credit, which could be a red flag to lenders.
- Length of Credit History (15%): The longer you’ve had credit accounts open, the better. A lengthy credit history shows that you have experience managing credit over time.
- New Credit (10%): Opening multiple new credit accounts in a short period can lower your score. Lenders may view this as a sign of financial instability.
- Credit Mix (10%): Having a variety of credit types, such as credit cards, installment loans, and mortgages, can positively affect your score, as it shows that you can handle different types of debt.
how does your credit score compare?
Now that you know the average score, how does yours stack up? If your score is below the average, it doesn’t mean you can’t improve it. Here’s what to consider if your score is:
- Below 580 (Poor): If your score is in the poor range, it’s essential to take immediate action to repair it. Start by checking your credit report for errors, paying down debts, and making consistent, on-time payments. A poor credit score can limit your ability to get loans and result in much higher interest rates.
- 580-669 (Fair): While a fair score might get you approved for loans, you likely won’t qualify for the best rates. Focus on reducing your credit card balances and keeping up with timely payments to gradually improve your score.
- 670-739 (Good): If your score falls in this range, you’re in a solid position. You likely qualify for most loans and credit cards with favorable terms. However, there’s still room to reach the “very good” or “exceptional” categories by maintaining responsible financial habits.
- 740+ (Very Good to Exceptional): If your score is in the very good or exceptional range, you’re in an excellent position. You’ll likely receive the best interest rates and terms on loans and credit, saving you significant money over time. Continue to manage your credit responsibly to maintain your high score.
How to improve your credit score
If your credit score is below the average or you simply want to boost it further, here are some key steps you can take:
- Pay Your Bills on Time: Late payments can hurt your score significantly. Make it a priority to pay bills on or before their due dates.
- Reduce Credit Card Balances: Lowering your credit utilization ratio is one of the quickest ways to improve your score. Aim to use less than 30% of your available credit.
- Avoid New Credit Applications: Each application for credit results in a hard inquiry, which can lower your score. Only apply for credit when it’s necessary.
- Monitor Your Credit Report: Regularly check your credit report for any errors or discrepancies. If you find mistakes, dispute them to ensure your score reflects accurate information.
Knowing the average credit score provides a valuable benchmark for understanding where you stand in terms of creditworthiness.
Whether your score is above or below the average, there are always steps you can take to improve it. By focusing on good credit habits—like paying bills on time, keeping credit utilization low, and monitoring your credit report—you can work your way toward better financial opportunities and long-term success.