August, 20, 2011
National
Average Credit Score
Let's face it, many of
us are just plain competitive and some of us are curious. Then there are
those that are worried about qualifying for a loan. So what do these
groups have in common when it comes to credit scores? They all want to
know how they compare to the national average credit score.
Based upon research conducted by Experian, one of the three major
credit reporting and scoring agencies. the
national average credit score is 692 (January 2011) In fact, Experian uses
the Fair Isaac Risk Model. All F&I Managers should be familiar with
what are called FICO credit scores. FICO is the credit model developed by
Fair Isaac.
Credit
Score Scales and Calculations
The following
explanation of concepts should help you to better understand how a consumer’s
credit score compares to the national average credit score.
Credit scores are on a
scale from around 300 to 850, with 850 being the highest credit score
possible. To give you a feel for the extremes, while the national average
credit score is 692, only 13% of the nation's population has scores above
800. At the other extreme, roughly 15% of the population has a credit
score lower than 550. In general, a good credit score is anything above
700.
That information gives
you two data points to think about. The national average credit score is
692, and a good credit score is anything above 700. Does that mean that
half of all Americans have a credit score below the national average?
The short answer is:
No. In fact, 58% of Americans have credit scores above 700. The national
average is only 692 because the average is being pulled down by some very low
credit scores. Remember, we're not talking about the median score (half
the population above a value and half below a value), we're talking about an
average score.
Factors
Affecting Credit Scores
There are a total of
five factors that go into the calculation of a FICO credit score. But
there are just two pieces of information that account for 65% of the total
score:
·
Payment
History (35% of credit
score) – A consumer’s payment history is determined from payment patterns to
creditors or lenders. This component of the score is a reflection of how
frequently the consumer pays their bills or loans back on time.
·
Outstanding
Debt (30% of credit
score) - The second major factor is how much debt the consumer has
outstanding. The more debt they have outstanding, relative to what
creditors believe the consumer can financially manage, the lower their credit
score.
·
Risk
Based Pricing
The Federal Risk Based
Pricing mandate, that became effective earlier this year, involves the
requirement for creditors to provide most of this information, along with other
related information, to consumers that they assist in securing credit for
purchases from their operation. Failure to do do can result in severe fines and
penalties.
Therefore
Insure your F&I
Manager is providing the required Risk Based Pricing notices to your consumers.
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