Many consumers wonder, “What is the average credit score?” The simple answer to that question is 692. This average number is based on data that was collected by the credit reporting agency Experian. To determine this average credit score, Experian used credit scores from the Fair Isaac Company.
The Fair Isaac Company creates a credit score called FICO. This score is created using data from all three credit reporting agencies. The three credit reporting agencies or bureaus are called Experian, Equifax, and Transunion. These companies all collect information on consumer’s debts and how they repay them.
When a consumer takes out a loan, the lender usually notifies the reporting agencies about the loan. The lender will also notify the reporting agencies about how the borrower repays the loan. For instance, they will notify the credit bureaus about any late payments and whether or not a credit card is over the limit. The information on each credit report is similar, but there can be variances between each credit report. To create credit scores, FICO looks at everything on a consumer’s reports, and they plug that data into a special formula which they use to create a credit score.
Many credit analysts claim that the average score is brought down by too many low scores. People who have declared bankruptcy or faced foreclosures have very low scores, and this brings down the national average. If a consumer wants to see how they compare to other consumers, they should not ask, “what is the average credit score?” Instead, they should ask, “what is the mean credit score?”
Mean numbers are calculated differently than average numbers are. The mean is the number in the middle of all of the credit scores. That means that 50% of consumers have credit scores that are higher than the mean score and that 50% of consumers have credit scores that are lower than the mean score. The mean credit score in the United States is approximately 720.
Consumers who wish to borrow money for a car loan or a mortgage will benefit by having a higher than average credit score. When a consumer has a high credit score, it indicates a low level of risk to the lender. Thus, the lender is willing to offer better terms and lower interest rates. In contrast, when a consumer has a lower credit score, they will be viewed as financially risky by the lender. Thus, the lender will typically offer that borrower shorter terms and higher interest rates. If a consumer’s score is too low, they may not be able to get a loan at all.
Unless you have a perfect credit score, you should be constantly trying to improve your score. You can ask the question, “What is the average credit score?” Once you find that number, you can try to make sure that your score is higher than that. However, having an above average score does not ensure that lenders will work with you. Once your score is above average, you should continue to work on improving it.
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