Experts will tell you that your age doesn't affect your credit score -- at least not technically. But on a practical level, that "technicality" couldn't be more inaccurate.
In reality, when you're fresh out of high school or college, the whole methodology of credit scoring works against you. After all, half of your FICO credit score -- the one most commonly used to grant new loans -- is based on your payment history and the length of time you've been managing credit. When you're in your early 20s, you don't have a payment history, and the length of time you've been managing your own bills is likely to be measured in hours rather than years.
The good news is that ageism in the credit scoring model comes as no shock to lenders.
"At 21, you're not going to have that strong of a credit score because you have a thin file," said Nessa Feddis, spokeswoman for the American Bankers Association. "But banks are eager to reach young people. Credit scores are a good tool to determine if you have the ability and willingness to repay. But they are not the only tool."
If you're trying to get a credit card when you're in your 20s, banks will look at whether you have managed your checking account wisely and whether you have sufficient income to repay a loan. (FICO is also working on a new scoring model that will pull in how consumers handle their cell phone and utility bills.)
Because lenders are well aware that average credit scores tend to rise with age, you're really not behind the eight-ball unless your score and credit history deviate from the norm in unpleasant ways. But do you know what normal is for your age?
The experts at Credit Karma, a website that provides free credit reports and scores to 35 million Americans, has compiled data on average credit scores and average debt by age. Here's a look at the averages and what you can do to improve your credit at any age
Age 20-30: Not surprisingly, 20- to 24-year-olds have a relatively modest amount of debt, mostly student loans, and the lowest credit scores of any age group. In fact, their credit scores are even lower than those of the under-20 set at 635 versus 645, respectively.
Why? Probably because 20 to 24 is when consumers are starting to apply for loans -- a relative negative in credit scoring formulas -- but don't have enough other credit or credit history to offset the modest hit. The good news is that average credit scores start to recover between ages 25 and 29 as the average American also starts building up new debts, from credit cards to auto loans and mortgages.
The best advice for people in this age group? Apply for a credit card as soon as you can, i.e. as soon as you have a job and a means to pay the bill, said Greg Lull, head of consumer insights at Credit Karma. Use the card responsibly for a few months and then apply for another card and another.
"Get it; use it; pay off the bill every month," he added. "As long as there are no annual fees on the cards and you use them responsibly, getting a lot of cards will help you build your credit score very quickly."
Having a lot of cards builds up the all-important "payment history" that accounts for 35 percent of the FICO score simply because you're paying and proving yourself responsible with larger group of lenders.
Getting multiple cards also increases your "available credit," which can help your score in the "amounts owed" category, which accounts for another 30% of the score. The reason? The scoring models compare how much debt you have outstanding to the amount of debt you have available. When you have one card with a $1,000 credit limit and a $500 balance, you're using 50% of your credit. That's a high utilization ratio and harms your score, said Lull.
But if you have five credit cards that each have a $1,000 limit and still owe the same $500 in debt, you're now using only 10% of your $5,000 in available credit, and that's a big positive in the scoring model.
Age 30-40: Average credit scores barely budge in the 30-something decade, but average debt starts to soar. Where 20-year-olds have borrowed less than $40,000 on average, by age 39, the average American has more than $80,000 in debt. That's mainly because this is when Americans typically start applying for the biggest debt of their lives -- a home mortgage, said Lull. Average credit score: 645-646.
Best advice: Keep paying those bills on time, and monitor your credit score carefully. If you plan to apply for a big loan, such as a mortgage, make sure you don't apply for any other credit for at least six months prior to filling out that application, he suggested. (Lenders get nervous if it looks like you're ready to overextend yourself.)
A number of websites, such as Credit Karma, BankRate.com and Mortgage Grader can help you estimate your mortgage payment and what you can afford. This is also a good time to pull your credit reports from all three credit bureaus to make sure they don't contain any errors that could cost you a loan. For free copies of all three bureau reports, go to AnnualCreditReport.com.
Age 40-50: By now you've built up a two-decade credit history and have likely handled a lot of different types of debt, from credit cards and auto loans to mortgages and home equity lines. That combination is starting to have an impact on your credit score. If you've handled all of these bills responsibly, you're likely going to see your credit score soar above the national average, which ranges between 648 and 657 in this decade.
That will allow you to save a fortune on your borrowing, refinancing high-cost loans with lower-cost debt and securing the best rates available. Indeed, given the amount of debt you're likely to have in this decade, responsible credit use is likely to save you $6,302 in interest charges alone, according to Credit Karma.
The best advice: Keep paying those bills on time, and you'll find lenders beating a path to your door. What if you have been less than creditworthy in the past? There's no time like the present to reform. Credit scores are dynamic, said Lull, so your score changes incrementally every month as more lenders report your payments. Make all your payments on time from here on out, and you can start climbing the credit score scale again.
Age 50-60: Outstanding credit tends to peak when consumers are in their early 50s and likely borrowing to send their kids to college, pay for family vacations and maintain their homes. However, as consumers head toward their 60s, their financial obligations begin to ebb, and average debt starts to decline, too. Because consumers are using less of their outstanding credit and continuing to build longer payment histories, average credit scores start to climb dramatically to between 671 and 685.
The best advice: Although you may still have all those credit cards you applied for in your 20s, now is a good time to concentrate your spending on one or two rewards cards that will pay cash back for every dollar you spend or give you credit for airline tickets, hotel stays or other valuable perks. There's no downside to leaving no-fee cards outstanding, but you have enough credit history that it's not going to hurt you if you cancel a credit card or two that charges an annual fee.
Age 60+: Now that you likely don't need credit, your credit score will probably be at such a lofty height that lenders would love to shower you with cash. Average credit scores range from 699 to 712 for consumers in their 60s and soar to 728 for those in their late 70s.
The best advice: Don't let the availability of credit convince you to borrow more than you can handle. After all, even though your credit score is rising, your income is likely falling. Once you're living on a fixed income from pensions, savings and Social Security, it's a good idea to be paying down those debts.