Your credit score is one of the single most important numbers related to your personal finances. It’s a snapshot of your overall credit health. And it’s used by lenders and other financial services providers to determine your eligibility for loans, credit cards, insurance, and more.
The average credit score in 2023 was 718, though this may vary according to your age and credit history.1 Knowing the average credit score and how credit scores are determined can help you build yours to improve your overall financial health.
Understanding credit scoring models
Most people assume they have just one credit score. However, there are two popular credit scoring models that are used, each of which can result in a unique credit score.
Explanation of FICO score
FICO was the first credit scoring model created by the Fair Isaac Corporation more than 25 years ago. It remains the most popular credit scoring model today, used by 90% of top lenders.
FICO scores fall in a range from 300 to 850. They fall into the following categories:
- 300-580: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very good
- 800+: Exceptional
FICO scores are calculated based on the following factors:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- Credit mix: 10%
- New credit: 10%
Read more: What is an interest rate?
Explanation of VantageScore
VantageScore was created in 2006 by the three credit bureaus to provide competition for FICO scoring. VantageScore combines the contents of all three credit bureaus to create one credit report.
Like FICO scores, VantageScores fall in a range from 300 to 850 and fall into the following ranges:
- 300-600: Subprime
- 601-660: Near prime
- 661-780: Prime
- 781-850: Superprime
VantageScore considers the following factors when setting your scores:
- Payment history: 40%
- Depth of credit: 21%
- Credit utilization: 20%
- Balances: 11%
- Recent credit: 5%
- Available credit: 3%
Credit score shifts during the pandemic
The pandemic had an interesting impact on credit scores. Despite the financial struggles that many people went through, the average credit score increased. Scores increased among all tiers, but the rise was especially the result of improved credit among borrowers with poor and fair credit.2
Households with poor credit saw their scores increase an average of 16 points, while those with fair credit saw an average score increase of nine points.3
Credit scores, especially among poor credit borrowers, improved during the pandemic for a variety of reasons. Programs such as mortgage forbearance, the pause of student loans, stimulus checks, and increased Child Tax Credit checks may have helped to improve the financial situation of consumers.
However, the largest driving factor in improving credit scores, according to economists from the Federal Reserve Bank of Boston, was reduced credit card usage. Borrowers overall saw a decrease in their credit card utilization, which is a key factor in both the FICO and VantageScore models.
Current average credit scores
The rise in credit scores didn’t stop during the pandemic. In April 2020, the average credit score was 708. That number rose to 716 for 2021 and 2022. And in April 2023, the average credit score was 718, according to FICO.1
Average credit scores differ significantly across different age ranges. The table below breaks down the average credit score for each generation in 20234:
Generation | Average credit score in 2023 |
Generation Z | 680 |
Millennials | 690 |
Generation X | 709 |
Baby Boomers | 745 |
Silent Generation | 761 |
Credit scores in a post-pandemic era
Credit scores increased during the pandemic — and have continued to increase since the pandemic started. However, it’s impossible to know if that trend will continue. There are some key factors that could impact the average credit score:
- Increased discretionary spending: During the pandemic, many people reduced their discretionary spending. Part of the reason was that since people couldn’t go out in the same way they previously had, there was less to spend money on. However, many families were simply more cautious with their money due to the ongoing financial insecurity.
- Inflation: It’s not just discretionary spending that’s increasing. Essential spending costs have also gone up with inflation. Simple household expenses like groceries have increased in price, meaning more people may once again be racking up credit card balances.
- Student loan payments: Throughout the pandemic, student loan payments were paused. Because no payments were required, there were no missed or late payments to report to credit bureaus. But student loan payments have resumed, and those who can’t afford their payments — or simply choose not to make them — will once again have those missed payments negatively impact their credit.
- Interest rates: Rising interest rates have a direct correlation to spending. On one hand, rising interest rates may result in fewer people making large purchases like homes and cars. However, people who rely on their credit cards for spending will see those rates increase as well, which could make it more challenging to pay down their balances, resulting in higher credit utilization.
Significance of your credit score
Your credit score plays many roles in your personal finances. One of the most significant roles your credit score plays is in loan eligibility. First, your credit score determines whether you’re eligible for certain loans. Certain lenders and loan types have credit score minimums in place. In the case of mortgages, those minimum requirements are universal. In other cases, they vary from lender to lender.
Your interest rate also impacts the interest rate you can get on a loan. A good or excellent credit score can help you land the best interest rates, while a poor credit score will result in a much higher score. The difference in the interest rates you get based on your credit score can make the difference in tens of thousands — or even hundreds of thousands — in interest over your entire life.
Your credit score also plays a role in some areas you may not be aware of. For example, your credit score can determine insurance eligibility and what insurance premiums you’re offered. A landlord may also check your credit when deciding whether to rent you an apartment. Finally, employers can even check your credit report when deciding whether to offer you a job.
The challenges of sub-600 credit scores
Having a credit score below 600 presents some unique challenges. As we’ve discussed, your credit score can affect everything from your interest rate on a loan to the ability to rent an apartment.
Unfortunately, a poor credit score can bleed into many areas of your life. First, to qualify for a conventional conforming mortgage, one must have a credit score of at least 620. As a result, those with sub-600 credit scores won’t qualify. And considering your credit score is also a factor in renting an apartment, a poor credit score can contribute to housing insecurity.
Another thing to consider is that someone with poor credit will pay considerably higher interest rates on loans. And considering that people with poor credit are often those struggling in other areas of their personal finances, these increased interest costs may be even more impactful.
The advantage of “Superprime” scores
According to a credit score report from The Ascent, roughly 23% of borrowers have credit scores that are 800 or higher. Another 24% have credit scores between 750 and 799.5 A credit score this high comes with plenty of benefits, including easier access to loans, lower interest rates on loans, lower insurance premiums, and more.
Another unique benefit of having excellent credit goes beyond the concept of saving money. A high credit score can actually help you make money.
Many of the best rewards credit cards are limited to borrowers with good or excellent credit. Those cards can help you earn cash back and travel points on your spending at a rate much higher than on credit cards available to borrowers with fair credit.
In fact, one study — also by The Ascent — found that the average American could earn more than $650 per year in credit card rewards.6 And for borrowers with the best credit scores, that number is even higher.
Read more: How many credit cards do I need?
How to improve your credit score
The importance of your credit score and what having a good credit score can do for you is clear. But how can you actually get there? There are some simple steps you can take to achieve a high credit score to help you optimize your financial health.
- Check your credit health: The first step to improving your credit health is getting in tune with where your credit is. Not only will checking your credit help you figure out where you’re starting from, but it will also help you spot and dispute any errors on your credit report that might be holding you back.
- Monitor your credit regularly: Once you know where your credit is at, it’s important to stay up-to-date moving forward. You can set up credit monitoring to ensure you’re alerted when there are changes to your credit report and score.
- Pay your bills on time: Your payment history is the most important factor that influences your credit report. You can improve your score over time by consistently paying your bills on time. Additionally, you can improve your score by catching up on any past-due bills that are currently showing delinquent on your credit report.
- Reduce your credit utilization: Your credit utilization is the percentage of your revolving credit in use. You can reduce your credit utilization in two ways: paying down your revolving debt balances and requesting higher credit limits.
- Optimize your credit mix: Your credit mix refers to the different types of credit on your credit report, including credit cards, mortgages, installment loans, etc. While it’s not a requirement to have one of each type of credit on your report, it can benefit you to have a mix of at least two.
- Keep credit lines open: It can be tempting to close out old credit cards that you don’t use anymore, but doing so could hurt your credit score. Not only will it reduce your available credit (and increase your credit utilization), but it will also reduce the age of your credit.
- Avoid opening new credit: New credit can be helpful when it increases your available credit or improves your credit mix, but opening new credit accounts initially has a negative impact on your credit report. Avoid shopping around for credit too often and limit hard inquiries to necessary situations.
- Become an authorized user: Becoming an authorized user on someone else’s credit card is a useful hack that allows you to instantly improve all of the credit score factors, assuming that person uses their credit card responsibly. It gives you credit for that account’s long payment history while improving your credit utilization.
- Seek professional help: With hard work and a bit of time, it’s entirely possible to improve your credit score on your own. But if you really feel you need help, there are credit counseling services that can help you improve your credit score. Just be on the lookout for predatory services that are out to get your money.
The bottom line
The average credit score has been rising steadily for the past several years and reached 718 in 2023. We may see a shift in average credit scores due to factors like inflation and resumed student loan payments. The good news is there are steps you can take to improve your own credit health.
