Good news for dealers looking to grow business by offering financing options to potential buyers – the average FICO credit score, a key component to financing decisions, is at an all-time high in the US. Based on a recent FICO blog there has been significant improvement in FICO scores since the Great Recession. The national average FICO score in April 2015 is at an all-time high of 695, up from a low of 686 in October 2009. The data for those two time periods also indicates that 19.9% of the population has a credit score of 800 or higher, up from 18.2%. Conversely, fewer consumers have credit scores below 600, 21.9% of consumers had scores of less than 600 compared to 25.1% in October 2009. According to the blog, more consumers financing their purchases are managing their loan payments responsibly and therefore not falling into the lower FICO range.
The significant improvement in customers’ credit since the depths of the Great Recession bodes well for dealers utilizing financing as it should result in improved approval rates compared to years past. At Pinnacle Finance FICO scores are only one of several considerations in our loan approval process. Other factors that weigh into our credit decision include home ownership, applicant(s) income, debt ratios, and any down payments.
FICO Score Primer – What do they mean and how are they derived?
The FICO score was first introduced in 1989, by FICO, then called Fair Isaac and Company. The FICO model is used by the vast majority of banks/credit grantors and is based on data in consumer credit files of the three national credit bureaus: Experian, Equifax and TransUnion. Because a consumer’s credit file may contain different information at each of the bureaus, FICO scores can vary depending on which bureau provides the information used to generate the score.
Credit scores are designed to measure the risk of default by taking into account various factors in a person’s financial history. Although the exact formulas for calculating credit scores are proprietary, FICO’s has released their weighting for various score components:
The importance of any one factor in a person’s credit score calculation depends on the overall information in their credit report. For some people, one factor may have a larger impact than it would for someone with a much different credit history. In addition, as the information in a person’s credit report changes, so does the importance of any factor in determining their FICO score. Even the levels of importance shown in a FICO Score chart are for the general population, and will be different for different credit profiles.