Credit Scores Age Like Vintage Bordeaux
Mon Aug 22, 2005
Life's trajectory is pretty predictable: Potty training, braces and pimples, all-night studying/partying, punching the time clock for 20 years, midlife crisis, shuffleboard and Pokino matches at the rest home, and finally -- permanent naptime.
Same goes with one's lifetime credit trajectory. A new study by the credit reporting agency Experian examined the borrowing habits of six age groups -- from credit score conception (applying for your first loan) to closure (paying off your last debt).
As you would expect, the older you get, the better you look on paper (at least to your banker). Here's the average score breakdown per age group based on Experian's PLUS Score range of 330 to 830 (higher being better):
Age 18-29: 637
Age 30-39: 654
Age 40-49: 675
Age 50-59: 697
Age 60-69: 722
Age 70+: 747
The early years (ages 18-39)
Your first credit card, your first car loan and mortgage, your first Botox treatment. It can take a while to establish a credit rap sheet, which explains why the youngest borrowers have the lowest average credit score.
But a few gray hairs doesn't mean you're done with those youthful indiscretions. The study found that those in the 30 to 39 age range had the highest number of late payments in the past year.
You might have outgrown lectures, but a gentle reminder (perhaps in the form of a Post-It Note on top of your overflowing pile of bills) is clearly in order. Timely bill payments are a biggie to banks. In fact, your payment punctuality makes up 35% of your overall credit score. So put the check in the mail on time -- every time -- to establish a strong credit score foundation.
The middle years (ages 40-59)
With age comes the effects of more responsibility and gravity -- and that goes for finance as well as for skin care. For those between the ages of 40 to 59, this means larger mortgages and higher education financing.
Americans spend an average of 26% of their income on monthly debt (excluding mortgage or rent). According to the Experian study, the 50 to 59 age group held the highest amount of debt -- an average of $21,256, excluding mortgage loans.
An important measure of creditworthiness is your debt-to-available-credit ratio. This factor makes up 30% of your overall credit score. Add up your outstanding balances and compare it to your credit lines. If you are near (or exceeding) your credit limits, lenders get antsy.
The golden years (ages 60+)
Senior discounts, life experience, and retirement aren't the only advantages to growing older. Like fine wine, your credit score gets better with age. The kids are done with college, the house is nearly paid off, and you've learned that it really is what's on the inside that matters.
While the 70+ age group had the highest credit scores when compared to young whippersnappers, Experian found that this group also used their available credit the least (just 13.3%). The high score is natural: 15% of your credit score is determined by how long you've been using credit. But putting the cards on ice can have a negative impact on how lenders perceive you.
Even if a card is reported as "open" on your credit report, if you don't use it occasionally, the lender will cease to report activity. (Important note: You do not have to carry debt month to month to improve your score.) Idle accounts aren't necessarily a big deal to those who have no plans to establish new lines of credit (or tap into existing ones, like home equity). But you want to make sure there's no funny business going on with your cards, either. So take an occasional peek into your credit file to make sure that things are still tidy.
Are you better than average?
According to Experian's National Score Index, the current average PLUS score in the U.S. is 678. How do you stack up against your peers? Check your credit file for accuracy and then look at your overall credit score. All three major credit reporting bureaus -- Equifax (NYSE: EFX - News), Experian, and TransUnion -- are required to give you a free credit report each year. (The program is being rolled out geographically, with total national coverage to be completed by September 1. See whether you're eligible yet.) You have to pay a few bucks extra to get your credit score.
