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The Real Fico Median Is Not 723

By Brian Anderson
Published: Wednesday, August 4th, 2010

9FICO scores are the commonly used type of credit scores by many lenders, insurance agents, employers and credit card holders. The scores, which range from 300 to 850, are calculated with a secret formula. Fair Isaac, FICO scores creator, have stated that there are five components in calculating customers’ credit scores. These are credit history, utilization, account balances, credit inquiries and payment history. Many customers knew all of these. Ask them what do they think about the number 723, and they’ll answer, “Why, it’s the FICO median score.”

The problem is the answer has been the same for years. Though myFICO.com doesn’t specifically include the number in their website, FICO creators instill that the median score is 723. On the other hand, the mean average score was never given.

Some websites have been stating that the FICO mean average was 678. FICO says that the number is nothing but rumour. They simply stated that the average score is not 678 and that the median score is 723.

This got many customers confused. The two numbers seem to tell them that there’s something wrong with the calculations. If FICO says it’s 723, how come some say it’s 678?

FICO clarified that median scores and average mean scores are different. It’s the statistical terms that made the customers confused. The median score is the middle number in the whole distributions of scores. The average mean is the sum of all scores divided by the number of scores.

Asked why FICO doesn’t provide the average mean, FICO answers that average or mean scores can be misleading that’s why they prefer to use the median score. The median can estimate the probability of a customer making a payment 90 days late or even two years late. It is used as a tool to determine the delinquency rates of those appearing above and below the median. For instance, the scores above the median score or those within the range of 750 – 850 have a total of 3% delinquency rates since those scoring within this range are less likely to default. The range where the median is found, that is as they claim as 723, has a 5% delinquency rate. The rest of the ranges consist of the higher delinquency rates. This means that having a credit score of 720 is enough and a 650 needs improvement.

The big question is, why is Fair Isaac not changing the median score? For years, the median score has not been changed. Should it have?

FICO public relations director, Craig Watts defended that the majority of the American population is still paying their bills on time. With that, the FICO scores remains to be relatively stable. Though they can’t say that it is the exact median, they claim that the median score is about 720 using the 300 – 850 scale. They say further that they only make estimations through the samples of credit reports that the big credit bureaus are sending them. They added that they are willing to update the number if the bureaus will send them updated samples. They just don’t know when that will happen.

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