Character Card System

I read somewhere (correct me if i am wrong) that what counts is the average level of the set, let's say the set is a KoC(120), another level 120, and a lvl 200, in the end it's going to be a S set rank since the average level would be 146

That's what I initially thought too but it's proven otherwise in this statement by Stereo:

Additionally, for sets of particular ranks, you get bonuses. These sets are not unique - both sets can give the same or different ranked ones.
All characters in the set must have achieved the rank to get these bonuses.

The Hero's Feat bonus (The one that adds HP, bossing damage and so on) is entirely dependent on rank; as KoCs can reach a maximum of rank A your entire deck would be brought down to rank A even if your average level is > 120. I believe the set effect you're referring to is the card set effect (Three Archers and so on) and yes, that one is determined by your deck's average level.