The Average American Has This Credit Score. How Do You Compare?

As lessons learned during the Great Recession become more distant, consumers are increasingly spending money again on everything from clothes, to cars, to condos, and the bills are piling up, especially for consumers who took a lump or two to their credit score over the past few years.

Climbing again

The amount of money Americans owe on revolving loans, such as credit cards, has marched from a post-recession low of $837 billion to $882 billion in October. Motor vehicle debt reached an all-time high of $943 billion in the third quarter, and the amount of money borrowed from banks to buy property has climbed for six consecutive quarters.

That may be good news for credit card companies like Discover Financial (NYSE: DFS ) and banks like Wells Fargo (NYSE: WFC ) , but it may not be good news for consumers, who are discovering that lenders are focusing more attention than ever on credit scores compiled by companies like Equifax (NYSE: EFX ) . Those credit scores determine whether or not a credit card or loan will be approved, and what interest rate the borrower will be charged.

How do you stack up?

According to the credit tracking firm Credit Karma, more than 75% of Americans have a credit score below 700.

That's not good news given that banks are likely to offer their best terms to borrowers with scores that are above those levels.

Those better terms can mean less money from the borrower up front, and far lower interest rates that can produce thousands of dollars in savings over time.

For example, according to myFico, a borrower with a credit score below 660 who is taking out a five-year loan of $20,000 to buy a new car would pay an annual interest rate of 10.385%, or $5,724 in interest over the life of the loan. If that same person had a credit score north of 720, the interest rate would be a paltry 3.245%, which works out to total interest payments of just $1,693.

That $4,031 difference in interest payments is a lot of money, but that isn't the total financial impact of a lower credit score. Investing that $4,031 for 30 years in something like an index fund that returns a hypothetical 6.5% per year would result in an extra $26,662 in retirement savings, which means a lower credit score could mean the difference between pocketing an extra $26,000, or spending an extra $4,000.

Making changes

If you're one of the many who have a credit score below 700, there's no time like the present to begin making changes that could have a major impact on your retirement savings.

Rating agencies like Equifax are continuously updating credit scores, and as a result, changes made today can have a positive impact quickly.

One way to give a boost to a credit score is to reduce the balance carried on credit cards to below 30% of each card's credit ...

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