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While Americans may not feel thrilled about sluggish wage growth or an expensive real estate market , they can take comfort in the fact that their credit score is likely at the highest it has ever been. The Fair Isaac Corporation (FICO), which compiles the credit history of most Americans into a single score ranging from 300 to 850, reports the average consumer has a credit score of 704, the highest on record. There's no single explanation for the steady rise in Americans' credit scores, but a recent change in how the credit reporting agencies collected data on individuals led to an average 11-point boost for 8 million Americans.
In theory, your credit score should reflect how much of a risk you are to lenders—the lower your score, the greater the odds that you'll be unable to pay back your loan. Every lender tolerates a different amount of risk, but the new national average of 704 lands somewhere in the "good, but not great" range . A study by the Federal Deposit insurance Corporation (FDIC) claims that on a hypothetical $250,000 mortgage on a 30-year loan, a score of 704 could qualify you for monthly payments between $1,279 and $1,305, with total interest paid falling between $210,440 and $219,800. That's a significant difference from a credit score of 686—the lowest the average score dropped after the 2008 recession—which could cost borrowers monthly payments between $1,305 and $1,338 and total interest payments of $219,800 and $231,680.
Your credit score also has ramifications outside of the banker's office. A 2015 report by the Federal Reserve found that couples embarking on a new relationship with similar credit scores tend to stay together when compared with couples with disparate credit scores. "Credit scores and match quality appear predictive of subsequent separations even beyond these credit channels, suggesting that credit scores reveal an individual’s relationship skill and level of commitment," according to the study.
Whether you're looking for true love or just a house you can afford in a decent neighborhood, the fundamentals of keeping good credit remain the same.
- Pay your bills on time: Your payment history comprises as much as 35% of your credit score, according to some reports, which means the single best thing you can do to maintain (or improve) your credit score is to make sure you settle all your accounts in a timely matter. If you're having trouble remembering to pay your credit card bill or other recurring monthly bills, apps such as Mint can help you with friendly reminders.
- Settle your debts: If you do happen to find yourself in the red, don't just let your debt fester—get a plan together to pay it off. That's often easier said than done, but nonprofit organizations, such as the National Foundation for Credit Conseling can connect you with a professional who will help you draft a plan to tackle your debt.
- Take on loans you can manage: Requesting new lines of credit—whether in the form of a credit card application or a loan from the bank—can actually lower your score if it's a habit (think several times in a single year). However, you can't have a good credit score without demonstrating you have the ability to pay back loans. If your credit score is low because of a lack of history, consider applying for a credit card meant for those just getting started with building their credit scores.
This article, " Your Credit Score Is (Probably) Higher Than Ever: Report " was originally published on ValuePenguin .