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It can take time to build credit and achieve a high credit score, especially for a 23-year-old, who may have recently entered the workforce or still be in school. But as of August 2024, Generation Z, which includes people aged 18-26, has an average FICO® credit score of 681. This is considered a “good” score that gives you access to more financial products and better interest rates than people with a lower score.

Learn more about the average credit score of a 23-year-old, what factors play a role in calculating credit scores, why credit scores matter, and some steps you can take to boost your score.

The Average Credit Score for a 23-Year-Old

As mentioned above, the average credit score for a 23-year-old is 681, according to Experian, one of the three credit bureaus. (The other two are TransUnion and Equifax.)

Since the lowest credit score you can have is 300 and the highest 850, this number puts you in a favorable place. You also have an opportunity to work on increasing your score.

Recommended: FICO Score vs. Credit Score

What Is a Credit Score?

A credit score is a three-digit number creditors use to determine how likely you are to repay a loan and make payments on time.There are two main credit scoring companies that generate your credit score: FICO and VantageScore. However, 90% of lenders rely on FICO when making borrowing decisions.

Though FICO and VantageScore use different models for credit scoring, they both have a score range of 300 to 850 to signify creditworthiness. The higher your score, the less of a financial risk you may pose to lenders — and the more likely you are to get approved for a credit card, mortgage, or loan. A more robust credit score also means you’ll typically qualify for more favorable terms, such as lower interest rates, and possible credit card perks such as earning cash back on purchases, airline miles, or higher credit limits.

Here’s a look how the scoring range of VantageScore vs. FICO differs so you can see where you stand with both:

What’s a Good Credit Score for Your Age?

A “good” FICO credit score falls somewhere between 670 to 739 or higher, regardless of your age. If, like many 23-year-olds, you lack a substantial credit history, your starting credit score probably won’t be within that range. The good news is, your score won’t be zero (no one’s credit score is), nor does it mean you’ll start out with 300, the lowest possible credit score.

Once you start showing you can manage your credit responsibly over time, your score should begin to rise. A spending app can help you manage bill paying and set budgets, which can make bill paying easier.

As you work on boosting your score, you’ll want to check it about four times a year to track your progress and make adjustments as needed. Credit scores update every 30 to 45 days, so it could take a little time before you start to see any changes.

How Are Credit Scores Used?

Credit scores are but one factor lenders consider when evaluating whether to approve you for any type of credit or loan. If your credit score is considered “good” or better, you may be more likely to get approved because in creditors’ eyes, you’ve shown you’re able to manage debt responsibly.

Credit scores aren’t just important for people looking to borrow money or apply for a new line of credit. If you’re renting an apartment, for instance, the landlord may run a potential tenant credit check to determine if you’re a safe bet. And, along with a background check, some employers may want to pull a prospective candidate’s credit score. Employer credit checks are more common in companies or businesses where the employee will be handling money and/or have access to customer’s financial information.

What Factors Affect My Credit Score?

There are five common criteria used to calculate credit scores. Here’s how much each one counts toward your FICO Score and why they can affect your credit score:

•  Payment history (35%). Your track record of bill paying can have a significant impact on your FICO Score. The more consistent and timely your payments, the better.

•  Credit utilization (30%). Credit utilization refers to the amount of available credit you’re using, and it’s a key factor in determining your credit score. A lower credit utilization rate is better for your credit score.

•  Length of credit history (15%). Generally, the longer an account is open and in good standing, the better it is for your credit score.

•  Credit mix (10%). Though not required, having a diverse array of credit, such as credit cards, installment loans, and even a home equity line of credit (HELOC), can show lenders you can handle different types of debt.

•  New credit (10%). When you apply for a loan or credit card, the lender will make a hard credit inquiry, which can cause a small, temporary dip in your credit score. If you apply for multiple loans or credit cards in a short period of time, your score can drop a bit. Lenders may also see it as a red flag that you’re taking on too many financial obligations.

How Does My Age Affect My Credit Score?

Your age doesn’t impact your credit score — your credit history does. But as noted earlier, credit scores do tend to increase with age and income levels. This means a 23-year-old has the opportunity to establish positive fiscal habits early on, such as setting budgets, using a money tracker app to monitor spending, and living within or below your means.

At What Age Does a Credit Score Improve the Most?

According to Experian FICO Score data, Baby Boomers and the Silent Generation tend to have the highest credit scores of all age groups. But the biggest jump in scores — 37 points in 2024 — generally occurs between Generation X and Baby Boomers.

How to Build Credit

Wondering how to build credit? A good place to start is to acquire credit accounts so you can start establishing your credit history. Remember, lenders want to see a track record of responsible debt management, so it’s a good idea to create sound financial habits now. Pay your bills on time consistently. Resist the temptation to use up all of your available credit. And keep tabs on your finances so you don’t spend more than you’re bringing in.

And keep in mind, this is a long game. How long does it take to build credit? It depends, but generally speaking, it may take three to six months to build enough credit and get your first credit score.

Credit Score Tips

Whether you’re just starting on your credit journey or are preparing your finances for a major purchase, increasing your credit score is always a worthy goal. Here are some tips to help you do just that:

•   Pay your bills on time, every time. It bears repeating: A track record of on-time payments shows lenders that you’re serious about being fiscally responsible. It also can go a long way toward building your credit score.

•   Keep older accounts open. Closing any credit card accounts ends your payment history with that lender. Eventually, this account will drop off of your credit report and potentially impact your credit length and credit utilization rate. If you have an older credit card account in good standing, consider keeping it open — and even using occasionally for smaller charges.

•   Get credit for other bills you pay. A 23-year-old can work toward increasing their credit score by looking into including rent payments, streaming services, and even some utility bills. Check out Experian Boost, which allows you to include these types of on-time payments in other accounts to your Experian credit report.

•   Check your credit report. You can check your credit reports without paying weekly via AnnualCreditReport.com. Ensure all the information is correct, and fix any errors you see.

   Note that your credit report won’t show you your credit score. Instead, you may be able to get that important three-digit number from a number of sources, including your bank, credit card company, or Experian. As with checking your credit report, monitoring your credit scores helps you identify discrepancies or fraudulent activities.

Recommended: Why Did My Credit Score Drop After a Dispute?

The Takeaway

The average credit score for a 23-year-old is 681, which is considered a “good” credit score. Having a score in this range can help make getting loans, credit cards, apartment rentals, and maybe even certain jobs a little easier. If you’re able to boost your credit score into a “very good” or even “exceptional” range, you may be able to qualify for loans with better terms or credit cards with attractive perks.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

What’s a good credit score for a 23-year-old?

No matter what your age is, a credit score that falls between 670 and 739 is considered good. The average credit score for a 23-year-old is 681, which falls in the “good” range.

Is a 760 credit score at 23 good?

Yes, a 760 FICO credit score puts you in the “very good” range, and it shows lenders that you’re creditworthy and able to capably manage credit.

What is a good credit limit for a 23-year-old?

Credit limits differ from person to person, but the average limit for Generation Z consumers is around $13,000.

Is 720 a good credit score for a 23-year-old?

Yes, it is. A 720 credit score is classified as a “good” score, according to FICO, and a “prime” score per VantageScore.

How rare is an 800 credit score?

It’s not that common to have a credit score of 800 or higher, which is categorized as “exceptional.” Case in point: Only about 22% of Americans have a score in the 800s.

How rare is an 825 credit score?

As mentioned above, less than a quarter of Americans boast a credit score of 800 or higher. Having an 825 credit score is rarer because it reflects, among other things, a near-perfect history of on-time payments. Late payments, defined as 30 days past due, appear on only 1% of credit reports for people with a credit score of 825, according to Experian.

Photo credit: iStock/BongkarnThanyakij

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Self-directed 401(k) accounts aren’t as common as managed or target-date 401(k) plans, but they can be of real value for DIY-minded investors.

What is a self-directed 401(k)? These 401(k) plans — which may be employer-sponsored or available as a solo 401(k) for self-employed individuals — expand account holders’ investment choices, giving them more control over their own retirement plans. Instead of being limited to a packaged fund, an investor can choose specific stocks, bonds, mutual funds, and sometimes even alternative investments, in which to invest their retirement money.

What Is a Self-Directed 401(k) Account?

The key promise of self-directed 401(k) plans is control. They allow retirement plan savers to basically act as a trustee for their own retirement funds.

A self-directed 401(k) plan offers expanded investment choices, from stocks, bonds, funds, and cash, to alternative investments like Real Estate Investment Trusts (REITs) and commodities.

For a plan holder who believes they have the investment know-how to leverage better returns than a managed fund or target-date fund, a self-directed 401(k) can be an appealing choice.

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Who Is Eligible for a Self-Directed 401(k)?

As long as your employer offers a self-directed 401(k), and you have earned taxable income for the current calendar year, you can enroll.

Alternatively, if you are self-employed and own and run a small business alone, with no employees (aside from a spouse), and your business earns an income, you are also eligible. You can search for a financial institution that offers self-directed plans, which might include a solo 401(k).

This is one of the self-employed retirement options you may want to consider.

How to Set Up a Self-Directed 401(k)

Setting up a self-managed 401(k) plan can be fairly straightforward. Once a 401(k) account is established, employees can fund it in the following ways:

•   Plan transfer. An employee can shift funds from previous or existing 401(k) plans and individual retirement accounts (IRAs). However, Roth IRAs can’t be transferred.

•   Profit sharing. An employee receiving funds from a company through profit sharing can use that money to open a self-directed 401(k) plan — up to 25% of the profit share amount.

•   Direct plan contributions. Any income related to employment can be contributed to a self-directed 401(k) plan.

Recommended: How to Manage Your 401(k)

Pros and Cons of Self-Directed 401(k)s

Like most investment vehicles, self-managed 401(k) plans have their upsides and downsides.

Pros of Self-Directed 401(k) Plans

These attributes are at the top of the self-directed 401(k) plan “advantages” list:

•   More options. Self-directed 401(k) plans allow retirement savers to gain more control, flexibility, and expanded investment choices compared to traditional 40k plans, putting their money exactly where they want — without relying on established funds.

•   Tax deferral. Like regular 401(k) plans, all self-directed 401(k) plan contributions and asset gains are tax-deferred.

•   Employee matching. Self-directed 401(k) plans make room for employer matching plan contributions, thus potentially paving the way for more robust retirement plan growth.

•   Plan diversity. Account holders can invest in assets not typically offered to 401(k) plan investors. Alternative investments like real estate, gold, silver and other commodities, and private companies are allowed, thus lending additional potential for diversity to self-directed 401(k) plans.

Cons of Self-Directed 401(k) Plans

These caveats and concerns are most often associated with self-directed 401(k) plans:

•   Higher-risk investments. Historically, alternative investments like precious metals and real estate come with more volatility — and hence more risk — than stocks and bonds.

•   Diversification is on you. You’ll need to choose among stocks, bonds and funds to augment your self-directed 401(k) plan asset allocation.

•   Higher fees. Typically, self-directed employer retirement plans cost employees more to manage, especially if an investor makes frequent trades.

•   Larger time investment. Since self-directed 401(k) plans offer access to more investment platforms, savers will likely need to spend more time doing their due diligence to research, select, and manage (especially in the area of risk assessment) their plan options.

How Much Money Can be Put in a Self-Directed IRA?

The amount an investor can contribute to a self-directed IRA is the same as the amount that can be contributed to a traditional IRA savings account. The annual contribution limit is $7,000 for tax years 2024 and 2025. Those 50 and older can contribute an additional $1,000, for a total of $8,000 per year.

For a self-directed 401(k), the amount that can be contributed is the same as the contribution limits for a traditional 401(k). For 2024, the limit is $23,000. For those age 50 and older, there is the option of making an additional catch-up contribution of up to $7,500. That means an individual 50 or older could contribute as much as $30,500 to a self-directed 401(k) in 2024.

For 2025, the limit is $23,500. Those 50 and older can make an additional catch-up contribution of up to $7,500, for a total of up to $31,000. In 2025, those aged 60 to 63 may contribute an additional $11,250 (instead of $7,500), for a total of $34,750.

Recommended: IRA vs 401(k)

Common Self-Directed 401(k) Investments

The ability to choose from an expanded list of investment categories is an intriguing benefit for a 401(k) plan holder who believes they have the investment know-how to leverage better returns from investments like self-directed 401(k) real estate, precious metals, or shares of private companies, among other eligible alternative investments.

For any retirement saver looking to leverage those options, the key is understanding what potential opportunities and what risks those extra self-directed investment vehicles bring to the table. Here’s a closer look at two of the more common alternative investments linked to self-directed 401(k) plans.

Real Estate Investment Trusts (REITs)

Investing in real estate simply means investing in residential or commercial properties, or real estate funds, with the goal of income generation. A self-directed 401(k) plan allows for real estate investing outside of the plan holder’s personal residence.

Examples of residential properties include:

•   Single-family homes

•   Condos

•   Townhouses

Examples of commercial real estate include:

•   Multi family homes

•   Office or retail buildings

•   Storage facilities and warehouses

To invest in real estate with a self-directed 401(k) plan, an investor would use their 401(k) funds to purchase the property, as well as to pay for maintenance, taxes, and other property-related expenses.

Real estate can be cyclical in nature, and can require large amounts of cash when investing in direct real estate properties. Thus, risk of investment loss is real and must be treated prudently by self-directed 401(k) real estate investors.

Precious metals

Investing in “hard commodities” like gold, silver, titanium, copper, zinc, and bronze, among other metals, are allowable with self-directed 401(k) plans. Self-directed 401(k) plan participants can either invest in precious metals directly, like buying gold bullion or coins, or invest in precious metals via stocks or precious metal funds.

Precious metal investing can be high risk, as gold, silver, and other metals can be highly volatile in value. As with real estate, investors have to be able to ride out chaotic market periods for commodities — but for some, the potential payoff may be worth it.

Investments That Aren’t Allowed Under Self-Directed 401(k) Plan Rules

While the list of investment vehicles that are included in a self-directed 401(k) plan are substantial, regulatory rules do prohibit specific investment activities tied to several of those asset classes. The following investment strategies and associated transactions, for example, would not pass muster in self-directed 401(k) plans.

Real Estate with Family Ties

While investing in real estate is allowed in a self-directed 401(k) plan, using that real estate for extended personal gain is not allowed. For example, that could include buying an apartment and allowing a family member to live there, or purchasing a slice of a family business and holding it as a 401(k) plan asset. Neither of these scenarios is allowed under 401(k) plan regulatory rules.

Loans

Self-directed 401(k) plan consumers may not loan any plan money to family members or sign any loan guarantees on funds used in a self-directed 401(k) plan.

No Investment Benefit Beyond Asset Returns

Self-directed 401(k) plan holders cannot earn “extra” funds through transactions linked to plan assets. For example, a plan holder can buy a real estate property under 401(k) plan rules but he or she cannot charge any management fees nor receive any commissions from the sale of that property.

Basically, a self-directed 401(k) plan participant cannot invest in any asset category that leads to that plan participant garnering a financial benefit that goes beyond the investment appreciation of that asset. That means not using 401(k) funds to purchase a personal residence or investing in assets like investments of collectibles (i.e. vehicles, paintings or jewelry or real estate properties that the plan participant personally uses.

Manage Your Retirement Savings With SoFi

While self-directed 401(k) plans can add value to a retirement fund, self-directed retirement planning is not for everyone.

This type of account requires more hands-on involvement from the plan holder than a typical target-date or managed fund might. Additionally, investing in alternative investments like precious metals, real estate, and other risk-laden investment vehicles, require a realistic outlook on downside risk and a healthy knowledge of how investments work beyond stocks, bonds, and funds.

In the meantime, you might want to consider rolling over any old 401(k) accounts to an IRA rollover to better manage your retirement savings overall.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

What is the difference between an individual 401(k) and a self-directed 401(k)?

A self-directed 401(k) gives account holders more investment choices, as well as more control over their own retirement plans. Instead of being limited to a packaged fund as they would be with an individual 401(k), an investor can choose specific stocks, bonds, mutual funds, and even alternative investments, in which to invest their retirement money.

Can I roll my traditional 401(k) into a self-directed 401(k)?

Yes. You can shift funds from a previous or existing 401(k) plan or individual retirement account (IRA) into a self-directed 401(k). The exception is a Roth IRA, which can’t be transferred.

How is a self-directed 401(k) taxed?

Like regular 401(k) plans, all self-directed 401(k) plan contributions and asset gains are tax-deferred until withdrawn. With self-directed 401(k)’s, there is a 10% tax penalty for early withdrawals (before age 59 ½), the same as with traditional 401(k)s.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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