Don't let anyone fool you, that is a tough question. It's like asking the average high school grade point average of students in America. The factors are almost overwhelming. What schools, quality, geographical area, support from home, the curriculum, etc., etc. but why is it important anyway. Like it or not, our credit world is generated through the analysis of credit scores. Even categories that used to be off bounds, such as a job, insurance, or setting up an account with your local water or electric company, can involve a credit check. So it's good to know where we are in the mix.
First let me tell you the scores promulgated by the credit industries. According to Experian, the national average is 680. According to the Fair Isaac Corporation, which has pioneered the famous FICO scores since the 1950's, it is 723.
According to the Fair Isaac Corporation, the breakdown is roughly as follows:
599 and below: 15% of Americans.
600 to 699: 27% of Americans.
700 and above: 48% of Americans.
For example, take 720 and above. This is considered the best. It will entitle you to the best credit in almost every transaction. On the other hand, there are some experts that give you an excellent credit rating only after you read 730.
Now forget about the pendants and let me tell you the actual reality. In my opinion, the average score, after talking to hundreds of people a week, for almost six years, is in the neighborhood of 660 to 680.
The reason: primarily because of high credit card limits. It is not unusual to have $50,000 or more on various credit cards. All charged at close to the limit. One gentleman called me the other day and had $160,000 on four cards. This sad scenario is much repeated. Credit card companies are all too happy to extend you credit. Because American's save less than previous generations, they charge more frequently. It becomes even worse if you are a small business owner. In many cases, it is almost impossible not to start or expand your business without using your credit cards, because of the difficulty of receiving loans. In other words, you have already exhausted your own resources and those of your friends and family, and have nowhere else to turn.
All the experts recommended you have no more than a 25% balance of available credit on your cards. But you can forget about that in a troubled economy. As is usual, a business owner pays their cards on time, but only the minimum balance. Because the interest is so high, it keeps getting added to principal. Even worse, the credit card companies can step in, even if you're late on one or two payments, and raise the interest rate. This drastically affects your credit score because approximately 1/3 of that is determined by how much you owe.
Without being in an alarmist, I'm afraid it's going to get worse. But small businesses are the backbone of the American economy and deserve a break. Any recovery package must take into consideration reasonably priced loans available to our small business owners who pay taxes, buy goods and services, and employ persons. This is a sure fire way of jump-starting our waning economy.
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