Studies of average credit scores show substantial disparities among different racial and ethnic groups. This article looks at those disparities and some possible reasons for them.
Key Takeaways
- Credit scores do not factor in age, race, income, or place of residence.
- However, the other factors that are used to calculate credit scores can disproportionately affect certain racial groups.
- For example, credit scores generally favor mortgage holders over renters.
- Asian and White populations in the United States have the highest average credit scores, followed by Hispanics and then Blacks.
What Credit Score Studies Have Found
Based on FICO score data, the payment processing company Shift calculated that the average credit score across all Americans was 703. The Asian population had the highest credit scores overall, with an average of 745. That was slightly above the average for White Americans, which stood at 734. The Hispanic population had an average score of 701, while the average for Black Americans was 677 (see table below).
A study of 2021 data by the Urban League found similar results. It compared median VantageScores (a FICO competitor) in majority Black, majority White, majority Hispanic, and majority Native American communities. The White and Hispanic communities had the highest median scores, while the Black and Native American communities had the lowest. (The study didn't include majority Asian communities.)
Credit scores measure a variety of financial factors but do not take into account the person's race, age, income, or where they live. Still, disparities can be driven by differences in how much debt a consumer has, whether they've ever had a credit card and for how long, and whether they are a homeowner with a mortgage—all of which can vary by race.
For example, "Black and African American college graduates owe an average of $25,000 more in student loan debt than White college graduates," according to the Education Data Initiative. That debt burden can make it difficult to keep up with other payments, potentially resulting in a lower credit score. It can also make it difficult to obtain a mortgage to purchase a home.
Credit scoring models tend to favor homeownership, tracking payments on mortgages but generally not rent or utilities. Since renters make up a higher percentage of Black and Hispanic households compared with White and Asian ones, fewer Black and Hispanic consumers can benefit from mortgage-related inputs to their score, while a pristine rent payment record may have no impact. Some newer credit scoring models, such as VantageScore 4.0, are attempting to address that by factoring in rent and utility payments if they are reported to the major credit bureaus.
In addition to race, the Shift study found that credit scores vary considerably among age groups, with younger consumers having lower scores, on average, and older consumers having higher ones.
Average FICO Score by Race
| Race | Average Score | Classification |
|---|---|---|
| Black | 677 | Good |
| Hispanic | 701 | Good |
| Other | 732 | Good |
| White | 734 | Good |
| Asian | 745 | Very Good |
How Credit Scoring Works
Both FICO and VantageScore have multiple scoring models, some for specific types of lending, such as credit cards vs. auto loans. Their scores are based on data in the credit reports compiled by one or more of the three major national credit bureaus (Equifax, Experian, and TransUnion), and because not all creditors supply information to every bureau, credit reports can differ from one bureau to another.
FICO and VantageScore each generate scores on a scale of 300 to 850 and use relatively similar criteria. FICO, which is the older of the two companies, remains the most commonly used system.
The two factors that have the biggest impact on an individual's credit score are:
- How regularly they pay their debts on time, which accounts for 35% of their score.
- How much credit they have available and how much they are currently using (a figure known as their credit utilization ratio), which accounts for 30%.
In other words, those two factors add up to almost two-thirds of a person's score.
Weighted less heavily but still important are how long they've had credit accounts (longer is better), how many times they've applied for new credit in the last 12 months (fewer is better), and whether or not they show a mix of credit types, such as a credit card, mortgage, and auto loan (some variety is good).
Important
The Equal Credit Opportunity Act makes it illegal for creditors to discriminate based on race, color, religion, age, and certain other characteristics. The Fair Housing Act offers similar protections for people seeking home financing.
What Is Considered Good Credit?
Experian, one of the three major credit reporting companies, divides the quality of credit into five tiers, beginning with Poor and culminating at Exceptional. Anything below 580 is considered Poor, and it takes a score of at least 670 to move into the Good range. A Fair score falls between the two. Very Good begins at 740, and those with a score of 800 or more enjoy the label of Exceptional.
By those measures, all of the racial groups in the Shift analysis had at least Good scores, with the Asian cohort scoring Very Good.
How Can You Get Your Credit Score?
You can purchase your credit score from credit bureaus or credit scoring companies, or you can obtain one for free from several sources. For example, many banks and credit card issuers will provide free credit scores to their customers. There are also reputable websites that offer free credit scores. Investopedia publishes this list of Top Sources for Free Credit Scores. Bear in mind that there are multiple credit scoring models and you may have several credit scores besides the one you obtain.
Why Are Credit Scores Important?
Lenders, such as credit card issuers or auto loan companies, use credit scores as a way to judge the creditworthiness of potential borrowers. Having a higher score increases the borrower's odds of being approved and of getting a good interest rate. Credit scores are also used by some employers, landlords, and insurance companies as a way of assessing applicants.
How Can You Raise Your Credit Score?
There are a variety of ways to raise your credit score and keep it up there. The most important one is to maintain a solid record of paying your bills on time. Another major factor is your credit utilization ratio, which compares the amount of debt you have outstanding at any given time with the total amount of credit you have available to you. If your credit utilization ratio exceeds 30%, your credit score can suffer.
The Bottom Line
Average credit scores in the U.S. differ by race, age, and other factors. At least part of that has to do with the factors that go into computing credit scores and how those factors are weighted, which tend to benefit some groups more than others.
Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy.
Shift Credit Card Processing. "Credit Score Statistics."
Urban League. "Credit Health During the COVID-19 Pandemic."
Education Data Initiative. "Student Loan Debt by Race."
VantageScore. "Are Rent and Utility Payments Included in VantageScore 4.0?"
myFICO. "What Is a Credit Score?"
myFICO. "What's in My FICO Scores?"
myFICO. "What Is New Credit?"
Consumer Financial Protection Bureau. "What Protections Do I Have Against Credit Discrimination?"
Experian. "What Is a Good Credit Score?"
Experian. "What Is a Good Credit Utilization Rate?"
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