Think your credit score is good? So do millions of your fellow citizens. Unfortunately, there is a good chance that you are wrong.
70% of Americans believe their credit scores are above average—much more than 45% who actually have scores that meet that definition, according to a survey and analysis by PYMNTS.com and Elan, a division of the US Bank.
An above-average score is a score that exceeds 751, according to national credit reporting data.
Meanwhile, only 8% of consumers believe their credit scores are below average, while in fact 21% have scores below 600, which is the actual range of scores below average.
Members of Generation Z and people of all ages who live salaried-for-salary are more likely to underestimate their grades incorrectly, with a huge 33 percentage point gap between the share claiming above-average grades and those who actually deserve such a rating.
While 62% of respondents said they would like to raise their credit score, the survey found that many lack education about credit scores to take steps that might improve their profile.
For example, 39% say that having debt on one credit instrument — such as one credit card — rather than multiple debts will improve their results.
In fact, your credit utilization rate — your total outstanding debt as a percentage of the total amount of credit you have — has a greater impact on your credit score than the total number of credit cards or loans you have.
As we detailed in “7 Ways to Increase Your Credit Score Quickly”:
“According to Fair Isaac Corp., also known as FICO, the company that calculates one of the most widely used credit scores, 30% of your FICO score is based on the amount you owe. However, not only the amount you owe is Important. It’s the amount you owe compared to the amount of credit you have, a ratio known as the credit utilization rate. For example, if you have a credit limit of $10,000 and a balance of $5,000, your credit utilization is 50%. …
There are many theories about the ideal credit utilization rate, but Experian suggests that it is best if the rate is less than 30%. In other words, you shouldn’t be charged more than $3,000 at any time if you have a $10,000 limit.”
Are you not sure how to raise your credit score? A little education can put you on the right path. For more information, check out “How I Got a Perfect Credit Score in 4 Steps.”
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