A Detailed Look on What is the average credit score?

The modern world is a strange, old place. In the past, the things that were traded back and forth between two parties were physical, as in they were actually there. This was things like goods, services, land, and animals to name a few, and they would be traded in exchange for whatever that person needed at the time. That is not the case today.

Today, we buy these things using our cash or our cards and a certain amount is taken from us that represents the value of the items bought, without exchanging something of equal value. This world where value is officiated by governments in the form of currency would have baffled our distant ancestors. What would have baffled them more is the idea of credit.

We use credit to pay for anything nowadays that we can’t yet afford, something that the lenders of the credit are relying on us to pay back. This would never have flown in the past, but with the advancements in technology, the ability to track payments, and an advanced legal system, society is more accepting of this form of payment.

The problem is, how do lenders know who will pay them back. Who can they trust, and how do you measure someone’s credit? For that we turn to credit scores, and today we will be taking a closer look at them, what they are and what is the average credit score in our society.

Your check stubs won’t show your credit score but you can use them for your own financial records if you so wish to.

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What is a credit score?

Before we dive into credit scores and what makes a good one, we should look at what they are. A credit score is a score based on a report of your finances that banks and lenders use to determine how likely you are to repay any debt you owe them. The institutions or people lending credit will use a credit score, before considering lending you any money as a precaution and take it as a very valued tool.

Given money’s nature as an easily traded and immaterial entity that we place value in for it to be worthwhile, it is notoriously hard to get back if you are owed it, especially from someone who doesn’t want to give it back. Therefore, lenders are more interested in preventive measures before giving out any cash, and this is one of them.

Keeping an eye on the credit scores of customers not only mitigates losses, but it also makes customers and potential customers more aware that they are being monitored. This creates a panopticon-like effect where people are not willing to risk running out on a debt in case they are being watched.

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What affects credit score?

Since credit scoring is a measure of the customer’s willingness and ability to pay back owed credit, anything that uses credit will inevitably impact a credit score. The big ones are obvious, like loans or mortgages from a bank, but many minor purchases influence credit as well.

Anything you may have on subscription can alter credit given the circumstances. These include phone contracts and insurance payments, as the service is provided in faith that you will have paid your dues. This may also include housing rents and utilities as well, depending on the landlord or housing company you are with.

If you want your credit score to remain good, it is important to pay all the debts that you have routinely. You don’t need to necessarily pay them off, you just need to show that they are being paid in a way that was agreed upon and that you haven’t abandoned paying them. Otherwise, your credit score can drop significantly, and it may take some time to regain good credit and lenders good graces.

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What are the different credit scores?

For measuring credit scores in the US, FICO is the company that many turn to, as its entire business is based on measuring credit scores through analytics. FICO measures credit by using a numbering system between 300 and 850 to indicate your current credit rating.

This numbering system is then split into five categories of how people should view your credit:

Very poor – between 300 and 579.

Fair – between 580 and 669.

Good – between 670 and 739.

Very good – between 740 and 799.

Exceptional – between 800 and 850.

The lower the number, the worse a credit score someone has. However, you shouldn’t worry if you don’t already know your credit score. To get the ‘very poor’ rating is incredibly difficult, and only people in the worst of debt tend to be in that area.

Due to the natural variance that affects economics, these scores change depending on the year, and that can affect the average as well. In past years, a credit score that was 600 could be considered very good, but not in today’s world. So, keep in mind that these numbers are for the world today.

What is the average American credit score?

Not surprisingly, the average American credit score that includes every American is in the good range and sits at exactly 711. This number can fluctuate, as a couple of years ago it was 701, but for this year it is the most accurate number there is.

The number can change with demographics as well. For example, age can impact credit. This is because when you are young, there is little information about your spending habits and not many young people have loans or debts yet. With so little information, lenders are wary to give credit and with no credit to measure the credit scores of younger people are lower – through no fault of their own, I should add.

However, older people have already used credit a lot in their life, and so there is much more information about their spending and loaning habits. This gives a more complete picture of whether it is okay to loan them credit or not, which inevitably improves their credit score.

If you are young and have not yet gotten anything on credit or through a loan, I do understand. I don’t really want any debt either, but unfortunately having a paid off debt or a credit card that is routinely paid off actually helps you in the long run and makes your credit look good for when you really need credit, like when you are buying a house.

Therefore, I suggest getting something small that you can continually pay off, like a phone contract or car insurance, anything that a lender can track later on.

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What will negatively impact my credit score?

Most of the answers to this question are pretty obvious, but some are less so. For starters, lack of credit history affects your credit score, as mentioned earlier, so make sure to get something easy to just pay off and collect good credit.

The big one that affects credit is also late or missed payments. Make sure you pay on time every time, or it may influence your future purchases. However, having a mix of different credit accounts that you regularly pay off actually can help your credit score, because it shows you can manage your credit well and that you don’t default on payments. If you can manage this, then this might be a perfect way to improve your score.

Lastly, new credit. This is a tricky one, because if you get new credit or search vigorously for new credit, it may lower your credit score, but you need to get credit accounts to improve your credit score. As annoying as this may be, it is how this system works. The solution is to try and only get credit every so often, and then pay it off until your credit score improves again. It’s time-consuming, but it is the only way.

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Final thoughts

The average credit score is higher than it was previously, and this is because people are far more aware of the money they spend and on what they spend it. Our world revolves around credit and maintaining a good score can be difficult, even maintaining the average is hard. However, if you keep tabs on what you use your credit for and make sure to pay off the credit in time, then you should have no problems keeping your score in the black. You may even be able to get better loans and credit than you originally thought you could.