A credit score is a number that helps lenders evaluate a person's credit report and estimate his or her credit risk. The most common credit score is the FICO score, named after software developer Fair Isaac and Corporation. A person's FICO scores are provided to lenders by the three major credit reporting agencies – Experian, TransUnion and Equifax – to help lenders evaluate the risks of extending credit or loaning money to people. (To learn more about credit ratings, read: The Importance Of Your Credit Rating.)

TUTORIAL: Credit And Debt Management: Repairing Credit

A person's credit score affects his or her ability to qualify for different types of credit and varying interest rates. A person with a high credit score may qualify for a 30 year fixed-rate mortgage with 3.8% annual percentage rate (APR). On a $300,000 loan, the monthly payment would be $1,398. Conversely, a person with a low credit score, assuming he or she qualifies for the same $300,000 mortgage, may pay 5.39% on the loan, with a corresponding monthly payment of $1,683. That's an additional $285 per month, or $102,600 over the life of the mortgage, for the person with a lower credit score.

Unfortunately, we don't start with a clean slate as far as credit scores are concerned. Individuals have to earn their good numbers, and it takes time. Even when all other factors remain the same, a person who is younger will likely have a lower credit score than an older person. That's because the length of a credit history accounts for 15% of the credit score. Young people can be at a disadvantage simply because they do not have the depth or length of credit history as older consumers.

Factors That Affect Credit Scores
Five factors are included and weighted to calculate a person's FICO credit score:

  • 35%: payment history
  • 30%: amounts owed
  • 15%: length of credit history
  • 10%: new credit and recently opened accounts
  • 10%: types of credit in use

It is important to note that FICO scores do not take age into consideration, but they do weight the length of credit history. Even though younger people may be at a disadvantage, it is possible for people with short histories to get favorable scores depending on the rest of the credit report. Newer accounts, for example, will lower the average account age, which in turn could lower the credit score. FICO likes to see established accounts. Young people with several years worth of credit accounts and no new accounts that would lower the average account age can score higher than young people with too many accounts, or those who have recently opened an account. (For additional reading, check out: How Can I Improve My Credit Score? )

Average Credit Scores by Age
FICO scores range from a low of 300 to a high of 850 – a perfect credit score which is achieved by only 1% of consumers. Generally, a very good credit score is one that is 720 or higher.

This score will qualify a person for the best interest rates possible on a mortgage and most favorable terms on other lines of credit. If scores fall between 580 and 720, financing for certain loans can often be secured, but with interest rates rising as the credit scores fall. People with credit scores below 580 may have trouble finding any type of legitimate credit.

Based on data compiled by Credit Karma, there is a correlation between age and average credit scores, with scores rising along with age. According to their data, the average credit score by age is as follows:

Age Credit Score
18-24 638
25-34 652
35-44 659
45-54 685
55+ 724

Keep in mind, these are averages based on limited sampling of data, and many individuals' credit scores will be above or below these averages for a variety of reasons. A twenty-something, for example, could have a credit score above 800 by making careful credit decisions and paying bills on time. Likewise, a person in his or her 50s could have a very low credit score because he or she took on too much debt and made late payments. The FICO credit scores take all five factors into consideration.

The Bottom Line
The Experian National Credit Index study helps explain how the behavior of certain age groups can affect average credit scores. The study found that people in the 18-39 age group had the greatest number of late payments during the previous 12 months; that the 40-59 age group held the greatest amount of debt; and the 60+ age group had the lowest average credit utilization (used the least amount of credit that was available to them).

Though it is not unheard of for a young person to have a stellar credit score, more commonly these ratings rise as people acquire credit, make careful credit decisions, pay bills on time, and gain depth and length in their credit histories. (For additional reading, check out: The Road To The Worst Credit Score Ever. )

Related Articles
  1. Credit & Loans

    Credit Card Review: QuicksilverOne Rewards

    Learn more about one of the best cash back rewards credit cards for individuals with average or good credit ratings: the Quicksilver Rewards from Capital One.
  2. Credit & Loans

    5 Extreme Ways To Raise Your Credit Score

    Desperate to rebuild your credit score because you can’t obtain a loan with a decent interest rate? Here are some extreme options to try.
  3. Personal Finance

    The Top 5 Personal Finance Experts to Follow in 2016

    Here is a look at five money and investing experts who can help you reach your financial goals for 2016.
  4. Retirement

    7 Ways to Use a Strong Credit Score During Retirement

    Find out why it is important to maintain a good credit in retirement. Learn seven reasons not to leave your credit score behind when you retire.
  5. Retirement

    6 Methods to Maintain a Healthy Credit Score During Retirement

    Learn how to improve your credit score during retirement. Your credit score still matters in retirement, and these tips can give it a boost.
  6. Retirement

    8 Ways for Retirees to Improve Their Credit Score

    These simple strategies will go a long way toward helping raise a damaged credit score.
  7. Personal Finance

    10 Unfamiliar Ways to Help Pay Down Medical Bills

    Mounting medical bills can be frightening. But these out-of-the-box solutions can help you avoid ruining your credit rating when you don't pay them.
  8. Home & Auto

    5 Things You Need To Be Pre-Approved For A Mortgage

    Before you can get serious about buying a home, you need to get pre-approval for a mortgage. Learn what you need to speed up the approval process.
  9. Credit & Loans

    Business Vs. Consumer Credit Reports: What's the Difference?

    Find out the difference between a business credit report and a personal credit report, and why it should matter for business owners.
  10. Credit & Loans

    What Is the Lowest Credit Score?

    Learn about the different types of credit scores available to borrowers, and find out about the lowest scores under each one of those credit scores.
RELATED FAQS
  1. How many free credit reports can you get per year?

    Individuals with valid Social Security numbers are permitted to receive up to three credit reports every 12 months rather ... Read Full Answer >>
  2. Is it possible to get a free credit report from Equifax?

    It is possible to get a free credit report from Equifax, as well as the other two major credit bureaus, Experian and TransUnion. ... Read Full Answer >>
  3. Do free credit reports affect your credit score?

    Free credit reports do not impact your credit score. Credit inquiries are divided into two categories: soft inquiries and ... Read Full Answer >>
  4. Does a free credit report show your credit score?

    The free credit reports available from the three credit reporting agencies do not include your credit score. Under the 2 ... Read Full Answer >>
  5. Is getting a free credit report safe?

    Getting a free credit report can be safe if you are careful about the particular website from which you get it. Credit reports ... Read Full Answer >>
  6. How accurate are free credit reports?

    Free credit reports are usually considered mostly accurate, which is why it is important to regularly examine your own reports. ... Read Full Answer >>
Hot Definitions
  1. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  2. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  3. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  4. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  5. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center