Here's where you stand relative to other consumers, and how you can interpret your own credit score.
Matthew Frankel| The Motley Fool
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The average American has a FICO credit score of 700, but unless your credit score is exactly 700, this doesn't tell you much about where you stand. If you know your FICO score and were wondering how you compare with other American consumers, here's a look at the current distribution of FICO scores, and some guidelines that can help you interpret what your score means.
Here's the distribution of FICO credit scores
If you know your own FICO credit score and have been wondering where you stand relative to the rest of American consumers, the Fair Isaac Corporation (creator of FICO scores) publishes a semi-annual distribution of FICO-scoring data. Here's where American consumers stand as of the most recent (April 2017) data:
FICO score range | % of U.S. consumers | % with lower scores |
800-850 | 20.7% | 79.3% |
750-799 | 19% | 60.3% |
700-749 | 17.1% | 43.2% |
650-699 | 13.2% | 30% |
600-649 | 10% | 20% |
550-599 | 8.5% | 11.5% |
500-549 | 6.8% | 4.7% |
300-499 | 4.7% | N/A |
Data Source: Fair Isaac Corporation. Distribution is representative of the FICO Score 8 version of the FICO scoring model.
Americans are steadily improving
You may notice that the majority of Americans are in the upper tiers of the FICO scoring distribution. Nearly 57% of Americans have a FICO score of 700 or higher. This has historically been the case, but the eight or so years of steady economic growth since the financial crisis has caused Americans' credit profiles to improve significantly.
As I mentioned earlier, the average FICO score in 2017 is 700, and this is the first time this milestone has been reached since FICO began tracking these statistics. This is 14 points higher than the average at the tail end of the Great Recession in October 2009. And the percentage of consumers with sub-600 FICO scores has dropped from more than 25% of the population in 2009 to just 20% today.
Because of the strong economy, fewer consumers have serious delinquencies and other derogatory information weighing down their scores. Over the past four years alone, the percent of consumers with 90+ day delinquencies has dropped from 19.4% to 16.5%. And fewer consumers have collection accounts, or any delinquencies at all, on their credit files.
What is a "good" credit score?
The data in the chart tells you how you stand relative to other American consumers, but it doesn't tell you whether your credit would be considered "good" by lenders.
To be clear, there's no specific threshold above which a credit score is considered to be "good." Different lenders prefer their borrowers to have different minimum credit scores; what one borrower considers to be excellent credit may not quite meet the standards of another.
With that in mind, FICO does provide some general guidelines to help you interpret your own credit score:
Approx. credit rating | FICO score range |
Exceptional | 800 or above |
Very Good | 740-799 |
Good | 670-739 |
Fair | 580-669 |
Poor | Below 580 |
Data Source: www.myFICO.com.
What does your credit score mean?
It depends what you're trying to buy, or what credit product you're trying to get. With credit cards, the best credit card offers are typically reserved for consumers in the "exceptional" or "very good" categories, although there are plenty of excellent credit card products that frequently accept consumers with good credit, or even fair credit. Consumers with poor credit are typically restricted to secured credit cards, which can help rebuild credit over time.
When borrowing for a home or car, it's another story. Lower credit scores are often able to borrow money for these purchases, but will be at a major disadvantage when it comes to the interest rate they get.
For example, the minimum FICO score required for conventional mortgage approval is 620. However, the average borrower with the minimum can expect an APR of 5.084% for a 30-year loan as of this writing, while someone with a score between 700 and 759 can expect a much lower APR of 3.717%. To put this into perspective, with a $200,000 mortgage, the lower-credit borrower would pay an additional $58,120 in interest over the term of the loan.
In a nutshell, a higher credit score can open more doors when it comes to borrowing money, and can also save you tens of thousands of dollars in interest.
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