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The average FICO® Score among U.S. consumers is 714, which is in the range of "good" credit scores. However, there's quite a bit of variation between generations, location, and certainly by income level. In this article, I'll discuss the average credit score of middle-class Americans, and what you could do to achieve a score well above the average.
The average middle-class FICO® Score
Admittedly, the "middle class" is a wide spectrum, and different groups define the middle class in different ways. But according to The Motley Fool Ascent's credit score research and data from the Federal Reserve Bank of New York and Equifax, the median credit score by income level is as follows:
| Income Level | Median FICO® Score |
|---|---|
| Low income | 658 |
| Moderate income | 692 |
| Middle income | 735 |
| High income | 774 |
For our purposes, we'll consider moderate- and middle-income Americans as being middle-class. But if we average these two groups together, we see that the median FICO® Score of the middle class is in line with the overall U.S. average.
Age and location also play a role
It's important to note that credit scores vary widely depending on the age of the consumer and the state in which they live.
In a nutshell, the older a consumer is, the higher the likelihood of them having a higher credit score. There are some good reasons for this -- specifically, a category called "length of credit history" makes up 15% of your FICO® Score. Plus, older consumers have had more time to establish a solid payment history. In addition, older consumers tend to have more money in savings, and therefore a lower need to borrow excessively.
Data from Experian shows that the average member of the baby boomer generation has a FICO® Score of 742. Among millennials, the average is a much-lower 687. This is still considered to be a "good" credit score, but there can be a significant difference in borrowing ability and the interest rates you'll receive with this score.
In addition, some states have significantly higher average credit scores than others. This could also be related to income, as higher-income states generally have higher average credit scores than lower-income states.
The five components of your credit score, and how you can use them
Aside from making obviously responsible financial decisions, such as paying your bills on time, the best way to put yourself in a position to maximize your credit score is to know how it works.
With that in mind, here are the five categories of information that make up your FICO® Score:
- Payment history (35%): Do you pay all of your bills on time, every month? This (specifically, avoiding a negative payment history) is the most important component of your FICO® Score.
- Amounts you owe (30%): This mainly refers to the amounts you owe relative to your credit limits or original loan balances. A good way to boost this category is to keep your credit utilization percentages low on your credit cards.
- Length of credit history (15%): This category considers several time-related factors. In addition to the overall length of your credit history, it also includes the ages of your individual credit accounts and the average age of your open accounts. If you've ever closed an unused credit card you've had for a while and your score went down, this is the main reason why.
- New credit (10%): You may have heard that applying for credit or opening a new credit card can hurt your FICO® Score, and it's true. A smart way to maximize this category is to only apply for and open new credit lines when you need to.
- Credit mix (10%): In short, lenders want to know that you can use all types of credit responsibly. So, if you have different types of accounts -- say, a mortgage, an auto loan, and a credit card -- it can count more favorably than if you only had one.
By knowing the FICO® Score formula and how each component is used, you can approach improving your credit score strategically. Think twice before closing old credit cards and applying for new ones, focus on lowering your credit utilization, and make sure you pay your bills on time every month.
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