Americans' Average Credit Score is Rising—How Does Yours Compare?

This article originally appeared on the Motley Fool.

It may be out of sight and out of mind for most Americans, but our credit score is often critical to our financial well-being.

We often think of our credit score as being a key cog that determines whether we'll qualify for a mortgage loan or perhaps be able to get a credit card. But your credit core has far-reaching implications beyond just whether you'll qualify for a loan. Prospective employers nowadays may look at your credit score during the hiring process, while landlords often examine your credit history to determine if you'd be a risky tenant. Having collections and repossessions on your credit history is usually a red flag for landlords. Your credit history could also impact how much of a deposit you'll need to put down for utility services such as electricity.

The average credit score in America

Though the exact credit score calculation remains a closely guarded secret by Fair Isaac Co., the company has offered a general overview of what matters most. Your credit score (also referred to as your FICO score), which ranges from a low of 300 to a high of 850, takes into account these following five basic factors.

• Your payment history (35%)
• Credit utilization (30%)
• Length of credit history (15%)
• New credit accounts (10%)
• Credit mix (10%)

In other words, you should have a pretty good credit score if you:

• Pay your bills on time
• Don't use more than 30% of your available credit
• Keep good-standing credit accounts open for long periods of time
• Avoid opening too many new accounts
• Keep a good mix of installment (auto and home loans) and revolving loans (credit cards)

So how is America doing overall? Honestly, not too bad, although there's plenty of room for improvement.

According to ValuePenguin, the average credit score in America is 695, which falls into the average/fair category. Preferably, we'd like to see as many people as possible at 720 or higher, which is where the best deals are to be had from lenders. Nonetheless, based on statistics dating back to 2005, the average credit score of 695 in 2015 is a new high and a full eight points higher than the average credit score of 687 during 2010 (which was undoubtedly hurt by the recession).

Though ValuePenguin is still filling in the details on 2015, we've witnessed a discernible uptick in prime credit scores (680-850) from 47% of the population in 2005 to 48.9% as of 2014, and a nice drop in subprime credit scores (300-619) from 36.9% in 2005 to 34.2% of the population as of 2014.

Older is wiser when it comes to your credit score

Based on ValuePenguin's data, two standout credit score trends emerge.

To begin with, and as you'd probably expect, credit scores tend to improve with age. With the exception of the 30-to-39 age group, every successive 10-year gap in age had a successively higher average credit score than the younger group that precedes it. For example, in the 70 and older group, 55% had a credit score north of 780, compared to 42% for persons ages 60 to 69, and 30% for those ages 50 to 59.

The fact that there's a correlation between age and credit score may not come as a huge shock since length of credit history is important, and the older generation obviously has that factor working in their favor. Additionally, with retirees and pre-retirees often living on a tighter budget (especially retirees since they may no longer have a consistent monthly wage beyond Social Security income), they're likely to be more prudent with their spending habits and credit usage.

On the other end of the spectrum, it can be pretty difficult for younger adults to get access to credit, especially following the 2009 CARD Act, which banned credit card companies from issuing cards to anyone under 21 years of age unless they could show proof that they have enough income to repay their debt or they have adult co-signers on the account. The 30-to-39-year-old crowd appears to be hurt by various forms of debt such as student loans, marriages, and buying a home, which can be a substantial burden on this age group's finances.

Income matters, sort of

The other major trend is that higher-income individuals tend to have better average credit scores than those with lower incomes. Based on a survey conducted by the Minneapolis Federal Reserve Bank, individuals who made 120% or more of median family income (MFI) had an average credit score of 775, which would be considered "excellent." Comparatively, those individuals with lower MFIs had a lower successive credit score. Those earning less than 50% of MFI had an average credit score of just 664.

Though income itself isn't a factor that determines your credit score, income can have two particular impacts. First, lower-income individuals probably aren't able to get high credit limits on their credit cards, meaning they're more likely to go beyond 30% of their credit utilization when making purchases, thus hurting their credit score. Also, those with lower income are more likely to rely on credit for their expenditures, thus once again leading to a higher propensity to go above and beyond the 30% threshold to available credit.

Ultimately, maintaining good credit habits comes down to responsibility. As I've previously opined, despite having an exceptionally high credit score, I've done nothing special to get it. I've merely focused on paying my bills in a timely manner, and ensuring that I open credit accounts only when doing so makes sense. Perhaps the easiest way Americans could learn to boost their credit score is by saying no to saving 10% off a $19.95 purchase and instead really taking the time to determine whether opening a new credit account makes sense.

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