10 Feb How the Average National FICO Score Affects You as a Borrower
If you’re like most people, then when it comes to borrowing money, your primary concern is your own credit score – and it should be – but it’s not the only factor involved.
The average national FICO score is also a factor, and for the first time, it’s reached 706. FICO scores range from 300 to 850, and generally, a score above 700 is considered good. Whereas a score above 760 is considered excellent.
But what does that mean for you?
First off, it’s something to celebrate. In order for the average national FICO score to increase, consumers’ credit scores had to increase – and that’s worth celebrating. Especially since during the Great Recession, the national average had hit a low of 686.
“It’s been a pretty stable and growing economy over the last 10 years, driving things like lower unemployment, which in turn drives consumers being in stronger financial health,” said Ethan Dornhelm, vice president of scores and predictive analytics at FICO.
In addition, there have been consumer credit educational efforts and an initiative by the credit bureaus to remove certain accounts in collections from people’s credit files – these things coupled with a better economy have led to this boost in credit scores.
With more websites and education directed toward credit scores, consumers are more inclined to figure out what their score is, and if it isn’t good, they want to work to improve it. Add to this the decline in collections accounts, which has boosted scores on an average of 11 points, and you can see why scores are improving.
So what does this have to do with YOUR credit score?
It affects where you rank in terms of the interest you’ll pay on a new credit card, a car loan or a mortgage, and how likely it is you’ll qualify for a loan, to begin with.
If your score is one of those that has improved beyond 700, then your chances of securing a low-interest loan are good. If, however, your score hasn’t improved or it’s gone down below 700, then it makes it more difficult to qualify for a loan and more costly when you do.
Understanding your credit score is imperative to understanding your borrowing power and future opportunities, especially if your goal is to pay the least amount of interest possible. It’s also important to know where you rank in comparison with other consumers – use the average national FICO score as a guide – and challenge yourself to move above the 706 scores.