Average Credit Scores

What are the facts about average credit scores? A lot of people are interested in knowing what the average credit scores are, probably so that they know where they stand in relation to the average. But there is a lot more to know about credit scores than what the average score is. Here are the facts (and myths) about average credit scores.

Average Credit Scores Myth: If your credit score is below average, you won’t be able to get a loan.

Average Credit Scores Fact:

Although it is possible to have a credit score so low that lenders will not extend you any credit, most lending institutions follow a formula based on your level of risk. Generally, the lower your score, the worse a risk category you are assigned. The lender adjusts interest rates to compensate for the percentage of people in your group who default. The high interest rates paid by everyone in the high risk group make up for the money lost on those who default. Which in the end, means you can get a loan even with a below average credit score, but the rates will be rather high.

Average Credit Scores Myth: If your credit score is above average, you’ll be able to get the best rates.

Average Credit Scores Fact:

This really depends on how far above average your score is. Remember, it’s not really about who has a better or worse score than you. It’s about what percentage of people with a score similar to yours default.

Average Credit Scores Myth: If your credit score is average, you’re doing fine.

Average Credit Scores Fact:

This depends on what you mean by fine. If you’re getting ready to take out a significant loan, you want the best possible rate you can get otherwise you’ll fork over a small fortune in interest. With an average credit score, you won’t get that rate. You may get a rate that you can live with, but if you’re going to be paying that interest for decades, don’t you want to make sure it’s as low as possible?

Average Credit Scores Myth: If you’re an average American, you’re probably going to have an average credit score.

Average Credit Scores Fact:

Every case is different. There really is no “average” credit picture. Some people are great at making their payments on time, but have all their credit cards maxed out. Others may have only a few credit cards with no balances, but have defaulted on a loan in the past. Your score is the result of your own circumstances and choices, and you have the power to change it. Once you know your score and have seen your credit report, you will be in a great position to improve to an above average score. You can get your scores for free from CreditScore.com.