Average Credit Scores: How Do You Compare?
A credit score is a number used to define the creditworthiness of a borrower. FICO (Fair, Isaac and Company) calculates the score based on a number of criteria to help lenders make underwriting decisions when they review loan applications.
What's an average credit score in the US? Towards the end of 2019, the average FICO score for Americans numbered a record 703. The figure depends on several factors, and can often fluctuate based on an individual’s financial behavior.
Seeking to understand how your score compares? Keep reading for a detailed overview of consumer credit that highlights the importance of credit scores and their calculation.
FICO Score Distribution
The annual distribution of FICO-scoring data published by Experian will help you understand where you stand relative to the rest of the consumers in the US. According to an Experian report published at the outset of 2020, here are different scores and a percentage of consumers falling in each category.
FICO Score Range
Consumer Percentage By Score
Very Good: 740-799
Very Poor: 300-579
FICO makes the calculation based on five factors. These include current debts, payment history, length of credit history, different accounts in the mix, and new accounts.
What Is Considered A Good Credit Score?
There are many criteria contained within a credit report, and each of these factors are given different weighting to calculate a total credit score. Although the information is helpful for comparing yourself to other US consumers, it will not necessarily confirm the number that lenders consider good.
There is no standard average credit score that lenders consider good because they have different criteria for ranking a borrower. However, generally, according to the normal credit score range issued by FICO, any score of 670 and above is considered a good score overall.
Average Scores Are Going Up
According to the Experian consumer credit review issued in January 2020, most consumers in the US belonged to the upper two tiers of the scoring categories thanks to economic factors like historically low unemployment. Almost 45% of the consumers had a FICO score of 740 or above
Figures compiled by FICO highlighted that despite the financial crisis of 2009, the scores of consumers improved significantly over time. The US saw an average score of 700 for consumers in 2017 for the first time since the time FICO began calculating the scores.
The number went up by almost 14 points as compared to the period when the recession was nearing its end in 2010. The number of consumers with scores below 600 also dropped. There was a dip of 5% as compared to the numbers in 2009.
A stronger economy all these years meant there were few cases of delinquencies and other negative information that brings down the number. Per the same figures reported by FICO in 2017, the percentage of people with delinquencies dropped from 19.4% to 16.5%.
However, all this is likely to shift rapidly as the American economy faces the onslaught of the COVID-19 crisis, leading to over 35 million job losses as of writing. Bankruptcies and debt accumulation for consumers will increase further, which will likely bring both individual and national numbers down.
What Does Your Credit Score Actually Mean?
Depending on what you intend to borrow and for how long, the eligibility requirements will vary widely by lender. You can qualify for installment loans, like home or auto loans, even with weaker scores. However, the big disadvantage of qualifying with a lower score is the higher interest rate that will accompany any financing.
According to Experian, the avg credit score required for an auto loan was 715 as of September 2019. For home loans, the minimum number is 620, but could sometimes stretch above 660 or higher depending on certain factors.
Are you wondering how to access good credit loans with a score that is weaker according to the chart? Many lenders offer installment loans for bad credit, which can help consumers improve their scores through timely payments and eventually qualify for better financing conditions and terms.
Lenders determine your creditworthiness and risk based on your financial behavior. Accordingly, it does not necessarily matter how you rank compared to others. Lifestyle and spending habits differ from person to person.
Ultimately, the best way to demonstrate creditworthiness to potential lenders is by repaying your debts on time and spending wisely to ensure you avoid debt traps while gradually taking measures to improve your credit score. Scores can fluctuate due to several important reasons, each of which demand careful consideration. Therefore it is important to maintain a good credit score through savvy financial habits, especially when you are seeking any form of financing.