Other than what’s in your bank account, there’s probably no more significant number than that three-digit FICO score when it comes to your financial health, potential and future. And there’s good news to report when it comes to credit scores: They’re going up.
In fact, in the year 2019, credit scores hit a record high average of 703. That’s firmly in the “good” range on the FICO score scale, which can nab you a low interest rate when it comes to installment loans like a mortgage or auto loan. A good credit score is also ideal for earning a lower APR when it comes to a new credit card. It’s worth noting that a big part of this record high average credit score is adjustments to the algorithm which no longer take medical debt and other types of debt into consideration.
But arguably the biggest reason for this credit score jump is the fact that the Millennial generation is becoming more financially sustainable. Specifically, since 2012, the average Millennial credit score has increased by 25 points, a significant jump when you consider that Millennials are usually the ones saddled most with student loan debt and also with limited credit history. This is a telling stat, as it’s an indication that Millennials are paying down debt and entering the housing market. In this post, we’ll take a look at average credit scores by generation and what you can do to improve your credit score in 2020. Here’s a closer look:
Credit Scores by Generation
Generally, the older you are, the higher your credit score. That’s largely because a big part of the credit score algorithm involves credit history, or length of credit. Obviously, the older you are, the longer your credit history. It’s why the Silent generation, or those 74 years old and up, has the highest average credit score among all generations, coming in at 756. Sticking to this pattern, Gen Z has the lowest generational credit score, coming in at 667. Here’s the full breakdown, from youngest to the eldest generation:
- Gen Z (18-22 year olds): 667
- Millennials (23-38 year olds): 668
- Generation X (39-54 year olds): 688
- Baby Boomers (55-73 year olds): 731
- Silent (74 years and up): 756
Improving Your Credit Score
Like we said in the opening, a good credit score is essential to not only getting approved for an installment loan or credit card, but for getting a low interest rate too. Generally, falling in the “good” credit score range of 670-739 will get you approved and lock in a low interest rate, but if you’re in the “fair” (580-669) or “poor” (300-579) categories, or if you just want to take your credit score to “great” or “excellent” levels, then there are some strategies you can put in place to hit your goals. Here’s a look:
Manage your credit utilization ratio: Also known as a debt-to-credit ratio, try not to be any higher than 30 percent when it comes to revolving credit, like credit cards, for the best possible score. In other words, if you have a $10,000 limit, being at or below a $3,000 balance will reward you with a higher credit score.
Do the little things: Payment history accounts for 35 percent of your overall FICO score, so it’s important to ensure you’re making all of your payments on time. We’re not just talking credit card bills either, but utility bills, cable bills, mortgage payments, auto payments, etc.
Check your credit report: It’s estimated that as many as a quarter of all Americans have some sort of an error on their credit report, and such errors have the potential to negatively impact your overall credit score. It’s why we suggest getting into the habit of checking your credit report at least annually. This way you can identify errors and file disputes sooner.
Establish good credit: Credit history accounts for about 15 percent of your overall score, while credit mix accounts for about 10 percent of it. That’s because the credit bureaus want to see how responsible you’ve been over a period of time with the credit that’s been opened in your name. That said, don’t be afraid to establish new lines of credit — just don’t do it recklessly, only do it when you need to do it.
