Financial Literacy 101: Credit in America today

Financial Literacy 101: Credit in America today

Financial Literacy 101: Credit in America today

In our first Financial Literacy 101 blog, we covered credit score basics: What it is, what the scores mean and how they're determined. In this piece, we're going to shift our focus to the country as a whole. If you're curious about the state of credit in America today and how you compare, keep reading.

We hold these truths to be self-evident
Let's get this across right up front: The average American credit score is not all that great. Not terrible, but not great.

The average consumer's FICO credit score - which, as a reminder, is the traditional standard for credit - registered at 695 in April of last year. Remember, the credit score range goes from 300 to 850. If you're asking, "What is a good credit score?" the answer is 670 or above, according to Experian. 

"Tens of millions of Americans' credit ratings are lower than they'd like."

So the positive news is that the average American's FICO credit score would qualify as good. The negative takeaway is that millions upon millions of Americans' credit scores fall below that mark. FICO found that 12.5 percent of consumers' credit scores were 550 or lower. 

It's also important to note that these figures don't account for every adult in the U.S. - not by a long shot. Ethan Dornhelm, principal scientist for FICO's analytic development group, pointed out some consumers with very low credit scores no longer use traditional credit at all, and that means they no longer have valid FICO scores. 

In fact, 45 million Americans do not have a usable credit score - one out of every 10 U.S. consumers, according to the Consumer Financial Protection Bureau. Of those 45 million, 26 million American adults have no credit history with the three major bureaus and 19 million consumers' credit histories are too limited or out of date to serve any real purpose.

The pursuit of happiness
So if your credit score is not what you want it to be, don't feel bad: Tens of millions of Americans are in the same boat.

Now, what can you and everyone else do to build credit?

One of the best options is to embrace nontraditional credit. While FICO scores have a narrow focus, nontraditional credit ratings incorporate rent payments, cable and electric bills and so on. If you pay your bills on time, your score will grow. Lenders legally must consider your nontraditional credit score, opening up new credit opportunities. And you can access that score for free and instantly through the PRBC app.