Research on average credit scores shows significant differences across racial and ethnic groups. This article explores these differences and their possible causes.
Key takeaways
- Credit scores do not take into account age, race, income or residence.
- However, other factors used to calculate credit scores may disproportionately affect certain racial groups.
- For example, credit scores generally favor mortgage holders over renters.
- Asian and white groups in the U.S. have the highest average credit scores, followed by Hispanics and then blacks.
What Credit Score Research Finds
Based on FICO score data, payment processing company Shift calculated that the average credit score for all Americans is 703. Asians have the highest overall credit scores, with an average of 745. This is slightly higher than the average score of 734 for the white population. The average score for Hispanics is 701, while the average score for African Americans is 677 (see table below).
An Urban League study of 2021 data found similar results. The study compared average VantageScores (FICO competitors) for majority-black, majority-white, majority-Hispanic and majority-Native American neighborhoods. White and Hispanic communities had the highest median scores, while black and Native American communities had the lowest median scores. (The study did not include the majority Asian community.)
Credit scores measure a variety of financial factors but do not take into account a person’s race, age, income or place of residence. However, differences may be made by factors such as the amount of debt a consumer has, whether and how long they have used a credit card, and whether they are a homeowner with a mortgage — all of which may vary by race.
For example, according to the Education Data Initiative, “Black and African American college graduates have on average $25,000 more student loan debt than white college graduates.” This debt load may make it difficult for them to make other payments, which may result in a lower credit score. This may also make it difficult for them to obtain a mortgage for their home.
Credit scoring models favor homeownership, tracking mortgage payments but typically not rent or utility bills. Because renters make up a larger share of black and Hispanic households than white and Asian households, fewer black and Hispanic consumers may benefit from a mortgage-related score, while a perfect rental payment record may not. Make an impact. Some newer credit scoring models, such as VantageScore 4.0, try to solve this problem by taking into account rent and utility bills (if reported to the major credit bureaus).
In addition to race, Shift’s research found significant differences in consumer credit scores across age groups, with younger consumers having lower scores on average and older consumers having higher scores.
Average FICO score by race
| Race | The average score | Classification |
|---|---|---|
| Black | 677 | Excellent |
| spanish | 701 | Excellent |
| other | 732 | Excellent |
| white | 734 | Excellent |
| Asia | 745 | very good |
Source: Shift Credit Card Processing, August 2021.
How credit scores work
Both FICO and VantageScore have several scoring models, some targeted at specific types of loans, such as credit cards and auto loans. Their scores are based on data from credit reports prepared by one or more of the three major national credit bureaus (Equifax, Experian, and TransUnion), and because not all creditors provide information to each credit bureau, credit reports may vary. Varies from game to game. another
FICO and VantageScore each generate scores in the 300 to 850 range and use relatively similar criteria. FICO is the oldest of the two companies and remains the most widely used system today.
The two factors that have the greatest impact on a person’s credit score are:
- How often they pay their debts on time (35% of their score).
- 30% is how much credit they have available and how much credit they are currently using (this number is called their credit utilization ratio).
In other words, these two factors combined account for nearly two-thirds of a person’s score.
Factors that are less weighted but still important include: the length of time they have had credit accounts (longer is better), the number of times they applied for new credit in the past 12 months (fewer is better), and whether they have a mix of types of credit, such as credit cards, mortgages, and car loans (some variety is good).
Important
The Equal Credit Opportunity Act provides that creditors may not discriminate against borrowers on the basis of race, color, religion, age, and certain other characteristics. The Fair Housing Act provides similar protections to borrowers seeking housing financing.
What counts as good credit?
Experian, one of the three major credit reporting companies, ranks credit quality into five levels, from poor to excellent. Credit quality below 580 is considered poor, and a score of at least 670 is required to enter the good range. The general score is somewhere in between. Very good credit quality starts at 740, while scores of 800 or above earn the Excellent label.
By these measures, all racial groups in Shift’s analysis received at least good scores, with the Asian group scoring very well.
How to get your credit score?
You can purchase a credit score from a credit bureau or credit rating company, or you can obtain a credit score for free from a variety of sources. For example, many banks and credit card issuers will offer free credit scores to their customers. There are also reputable websites that offer free credit scores. Investopedia publishes a list of top resources for free credit scores. Keep in mind that there are multiple credit score models and you can have multiple credit scores in addition to the one you receive.
Why is your credit score important?
Lenders, such as credit card issuers or car loan companies, use credit scores to determine a potential borrower’s creditworthiness. The higher the credit score, the better the borrower’s chances of getting approved and getting a good interest rate. Some employers, landlords, and insurance companies also use credit scores to evaluate applicants.
How to improve your credit score?
There are many ways to improve your credit score and keep it in good shape. The most important thing is to maintain a good record of paying your bills on time. Another important factor is your credit utilization ratio, which compares the amount of outstanding debt you have at any given time to the total amount of credit you have available. If your credit utilization ratio exceeds 30%, your credit score may be affected.
Bottom line
The average credit score in the United States varies by race, age, and other factors. At least part of the reason has to do with the factors in the calculation of credit scores and the weighting of those factors, which tend to favor certain groups more.
Investopedia requires authors to use primary sources to support their work. This includes white papers, government data, original reports and interviews with industry experts. We also refer to original research from other reputable publishers where appropriate. You can learn more about the standards we follow when producing accurate, unbiased content in our editorial policy.
