When it comes to credit scores, does gender matter?

A recent study by Credit Sesame found that men tend to have higher credit scores than women: The average score for men was 630, while the average for women was 621. It's not a major gap, even Credit Sesame admits. Even so, what do the results reveal about the differences between the genders when it comes to credit?

Gender Pay Gap

The study lists the wage discrepancy as one possible explanation for the difference in credit scores. Only 18% of the women surveyed (compared with 23% of men) reported making an annual salary of $75,000. Of course, income isn’t a factor when it comes to credit scores. It may be that a higher wage makes it easier to manage more debt, resulting in a higher score. 

The gender pay gap is nothing new; most folks are familiar with often-quoted figure that women make 75 to 80 cents to every $1 a man makes. But a closer look at the wage scale, from an infographic provided by PayScale, a compensation analysis site, offers some interesting insight.

Noting that men do, on average, earn more than women, the infographic shows that the gender pay gap is actually not very large when comparing people with similar abilities and experiences working the same job. Using those guidelines, the annual salary disparity ranges between 1% and 4%.

PayScale concludes that the gender pay gap is more likely based on job choice and family responsibilities, both of which result in lower average earnings for women. At about the age of 30, women often put personal life choices (including having children) ahead of a career, further eroding their ability to keep up wage-wise. 

Time Takes Its Toll

Credit Sesame found that the credit discrepancy gets wider with age. This discrepancy culminates at about age 65 when men tend to have a 15-point credit score advantage over women. 

This is consistent with PayScale’s research, which points out that women’s salaries tend to level off at about age 39 while men’s earnings continue to grow until about age 48, giving men plenty of time to increase credit card limits (and therefore, credit scores) by their mid-60s. Simply put, the jobs and careers women often choose don’t pay as well over the long haul as the ones men choose.

Men: More Debt But Better Records

Credit Sesame's study showed that men carry more credit card debt than women – a fact that at first makes their better credit scores seem paradoxical. But not really, if you understand how scores are calculated. Credit scores are based, in part, on how close your expenditures have come to your credit card limit (that is, the amount you can charge on the card), a figure known as your credit utilization ratio. Having higher credit card debt does not matter if that ratio is low; if, in other words, your outstanding balance is still a smaller percentage of your overall limit, which is the case for men versus women. Thanks to the fact that their credit limits are higher, men tend to use less of their available credit than women (see The Top 5 Things Men Spend Money On.)

Having collection accounts (that is, an account that's so far past due it's been turned over to a collection agency) can have a significantly negative impact on your credit score. Credit Sesame found that women are more likely than men to have collection accounts. This seems strange, given the fact women have less debt than men and are overall better money managers, according to a survey done by Experian, one of the Big Three credit bureaus, in 2013.  For example, men tend to take out bigger mortgages and appear to have a harder time making the payments.

Once again, however, the credit score gap can have negative side effects. A lower credit score means that women will likely end up having  to pay higher interest rates, not just on credit cards, but on any sort of loan or financing. This can make it harder to balance a budget and easier for debts to snowball out of control.

Women: An Edge as Investors

Fortunately, for women, the credit battle of the sexes is only one battle in a very long war. How Women Investors Make Money – and Data Suggests Women Are Better (Behaved) Investors from a Betterment study of its clients – point to women's advantage in staying the course and ending up with higher returns.

Does this mean it’s only a matter of time before women's credit scores start outranking men's? 

The Bottom Line

The average nine-point credit score gender gap noted by Credit Sesame is not super significant, statistically speaking.  Still, it exists, and it increases over time. The formulas used by the credit reporting agencies to determine credit scores reward the combination of high debt coupled with high credit limits, and that tend to punish women who have less of both. 

The fault doesn't seem to lie with female financial abilities: The Experian study found women to be better at managing money and debt than men. Instead, one driver of the difference seems to be the wage gap between the sexes – though the gap may not be as big as it appears, if you compare people doing the same jobs. Even so, equal pay for equal work wouldn't hurt.  

For both sexes, the key factors to achieving and maintaining a good credit score remain prudent use of your cards (leave a healthy margin in between your balance and your credit limit) and paying all bills on time.

For related reading, see Women And Finances: Is There A Gender Bias?

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