If you ask anyone who knows much about credit scores, there’s one thing that most people know – the FICO credit score range goes from 300 to 850. The lowest possible FICO score you can get is a 300 and a perfect, albeit unrealistic and unnecessary , score is 850. However, knowing the range alone doesn’t really tell you much. You need to understand the “texture” of that range.
Is the range linear or logarithmic? Is the distribution of scores even across each value or is it a normalized distribution? The texture of the range can give you a better understanding about credit scores, much more than simply knowing the numbers in the range.
Credit Score Range
So let’s back up a little bit. We know the FICO credit score range is 300 to 850, meaning every score will be a number between 300 and 850 (inclusive). Now you know where the range begins (300) and where range ends (850), what does the curve of the range look like in terms of distribution? Where do the scores cluster?
Distribution of Credit Scores
Here’s what the distribution of scores looks like according to myFICO, which is owned and operated by Fair Isaac Corporation, the creator of the FICO score equation:
- As you can see, the distribution is heavily skewed to the higher end of the spectrum. A full 58% of all FICO scores in the United States are 700 or above, which is in line with the idea that the average is somewhere between 680 amd 700.
- A full 13% of all FICO scores are above 800 while 15% are between 300 and 599.
- Unfortunately, if you have a score between 300 and 500, you’re in the bottom 2% of the FICO credit scores.
Remember that your credit scores among the three bureaus (TransUnion, Equifax, Experian) can vary up to fifty points, so any discussion of “average” has to take that into consideration.
Shape of the Curve
Now you know that even though the FICO credit score range is 300 to 850 and you really need to be 680 and up to be better than average. How hard is it to improve your score? Well that depends on where you start right? Or does it? I struggled mightily with the title of this section because I didn’t know what to call it so I’ll just explain it.
I want to know whether my current score has an effect on how hard it may be to increase the score. If you have two people doing the same things, credit-wise, and one starts with a score of 500 and the other at 700, will one see a larger improvement? Is the increase from 500 to 600 much easier or just as difficult as increasing a score from 700 to 800?
I know empirically this has to be true because there are only so many things you can do to improve your score and once you do them you’re not going to derive as much benefit from them. For example, someone with a low score will improve their score more when they make another month’s worth of regular payments when compared to someone with a higher score and years of on-time payments. However, just for the sake or argument, what does the range look like in terms of difficulty improving your score?
I thought it would be good to look at auto loan rates (48-month new car loan rates, according to myFICO) to see if they told a story.
My assumption is that in the score ranges where it’s easy to move around in, the interest rates will vary very little. Based on that assumption and the chart, we can see that:
- With the exception of the “best” range, the range buckets themselves get smaller and smaller as you move up in the range. The first bucket is 89 points, the next is 34, then 34, 29, and 29.
- I appears it’s relatively easy to move from the 500-589 range of scores to the 590-624 range of scores. By moving up one bucket, you get a 1% break, or a 6.25% discount off a 16% auto loan rate.
- It would seem to be much harder, roughly 3% difference in actual interest rate and a 20% discount, to go from 590-624 to 625-659. It’s also even harder to move from 625-659 to 660-689 as you’re getting another 3% break on your rate (25% discount).
- The next step up isn’t has big (1% or 11% discount) but the final step, from 690-719 to 720-850 is another hard one because you’re getting a 2% rate decrease (25% discount).
- Finally, it’s interesting to note, you get no discount whatsoever after you have a score of higher than 720.
The actual interest rate isn’t what’s valuable information here, it’s how the interest rate changes with your credit score. As you move higher into the scale, the interest rate falls faster and faster, which shows me that increasing your score when you’re already in the upper ranges has to be much harder (mostly because there are fewer things you can do). It also shows me that if you know your score is in the low 700s, it would behoove you to try to get it above 720 so you can get a 25% discount on your auto loan rates!
While FICO credit scores will always remain in that black box, it’s interesting to know that the scores all skew towards the top end and that it gets progressively harder to improve your score as you make your way up the range, which matches our experiences. If you’re curious where you stand, you can always get your free FICO credit score  and you can see how you stand by finding out what is a good credit score .
What did you think of my wild analysis? I thought I’d have a little fun and am curious what you think.