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Your credit score is really important. It does more than just determine if you can get approved for a credit card that you apply for. If you try to rent an apartment, get insurance, buy a house, or even sign up for cellphone service or utilities, you can expect to undergo a credit check.
Since credit scores matter a great deal, it's helpful to know your own score is. Specifically, you may want to know if your score is higher or lower than that of your fellow Americans. Here's what you need to know to find that out.
This is the average credit score in the United States
You actually have more than one credit score because there are a few different scoring formulas used. The two most popular formulas give you a FICO® Score and a VantageScore.
According to research from The Motley Fool Ascent, the average FICO® Score in the United States is 714. This is classified as a good score. The average VantageScore is 701.
To find out how your score compares, you can check your score online. You can pay to check your score, but a number of financial institutions also offer it for free.
For example, both Chase and Discover offer the chance to check your score at no cost to you, even if you are not a customer. Chase uses VantageScore, and Discover provides your FICO® Score, so you can get a good idea of how you rate under both formulas.
What should you do to improve your credit?
If your credit score is average or better, then you're in pretty decent shape. The average score, as mentioned above, is in the range considered "good." Even with a good score, you still have room to improve.
You could try to get your score above 740, which would be classified as "very good," or you could bump it up to 800 or higher and it would be considered "exceptional." Still, a score of 714 should get you pretty good rates if you apply for a mortgage or car loan and should satisfy most companies you might want to do business with.
If your score is below average, though, or if you simply want to work to get it as high as possible, it's helpful to understand how the scoring formula works and what to do to improve. While there are slight differences between FICO® Scores and VantageScores, these are the factors that matter.
Payment history
Paying on time is the most important factor in determining your credit. Make it a point to never miss a due date. If you have a history that includes a missed payment or two, you may want to ask your lender or card issuer if it would be willing to voluntarily remove this negative information from your report if you've generally been a good customer.
Credit utilization
Credit scoring formulas take into account how much of your available credit you use. A lower utilization rate is better. If you have used more than 30% of your available credit, your score will take a hit, as this is a red flag that you aren't really being responsible with credit. Try to pay down your debt or ask for credit line increases to bring your ratio down.
Types of credit
There are different kinds of debt, including revolving debt like credit cards and installment loans like mortgages. If you have a good mix of different kinds of debt on your credit record, this works in your favor and boosts your score. While you don't want to borrow just to improve your credit, if you've taken out a car loan, home loan, or personal loan, these can help boost your score in this area.
Average age of credit
A longer credit history helps improve your credit score, too, since it helps creditors assess your behavior over time. Avoid closing old accounts or opening too many new ones at once so you don't hurt your score.
New inquiries
Finally, new inquiries are requests for new credit. When you apply for a new loan or credit card and lenders check your credit, this is noted on your report and stays there for two years. Too many inquiries will lower your score, so don't apply for new cards or other loans too often.
If you understand how credit scoring works, you'll know how to improve your credit and can start working on doing so today. This is especially helpful if your score is below average, but it doesn't hurt for anyone to start working to improve -- no matter what their current score happens to be.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy .
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