More Americans' credit scores sink to new lows

[Roland99]

Source: USA Today

Figures provided by FICO show that 25.5% of consumers nearly 43.4 million people now have a credit score of 599 or below, marking them as poor risks for lenders. It's unlikely they will be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use.

...

More are likely to join their ranks. It can take several months before payment missteps actually drive down a credit score. The Labor Department says about 26 million people are out of work or underemployed, and millions more face foreclosure, which alone can chop 150 points off an individual's score. Once the damage is done, it could be years before this group can restore their scores, even if they had strong credit histories in the past.

On the positive side, the number of consumers who have a top score of 800 or above has increased in recent years. At least in part, this reflects that more individuals have cut spending and paid down debt in response to the recession. Their ranks now stand at 17.9%, which is notably above the historical average of 13%, though down from 18.7% in April 2008 before the market meltdown.

There's also been a notable shift in the important range of people with moderate credit, those with scores between 650 and 699. The new data shows that this group comprised 11.9% of scores. This is down only marginally from 12% in 2008, but reflects a drop of roughly 5.3 million people from its historical average of 15%.

Read more: http://android.usatoday.mlogic.mobi/money/1870527/full/;jsessionid=5ED5E0E9F97CB237CEB014BAABD154AF.wap2

[tridim]

1. Credit scores are going to have to reset at some point.

I've spent 25 years establishing nearly perfect credit, and after 12 months of unemployment my score is now decimated.

What metric should matter more? Longevity or a year of bad luck caused by a major recession?

[Roland99]

3. Unemployment bit me twice

Guess we need to look for jobs that are super-secure. You know...like a Wall St. exec. They can't do ANY wrong!

[kitfalbo]

20. well.

7 years from when the most recent delinquency happened it resets, barring specific company policies or a few state laws. (also tax liens have some differences)

The basic reset point.

[Roland99]

44. FYI - PBS Frontline show on the history of FICO >>>>>>>>>>>>

Thought I'd put this in a reply here to make it more visible. :)


http://www.pbs.org/wgbh/pages/frontline/shows/credit/more/scores.html

Millions of Americans who once worried about test scores in their school days are now discovering a new score is following them around as adults -- the credit score.

It's estimated by credit industry experts that roughly 75 percent of the U.S. population that is eligible for credit (i.e. 18 years or older), have a credit rating score at any given time that indicates the individual's credit worthiness to take out a loan, a mortgage, etc.

The credit score system has been around for 45 years and is credited with making lending less discriminatory and credit more widely available. But while the meticulous collecting and sharing of consumers' credit histories has dramatically improved the efficiency of U.S. credit markets, critics say the credit bureau's information -- affecting everything from who insures you to who hires you -- may contain substantive errors and is increasingly being used and shared among companies without consumers' knowledge.

The vast majority of Americans don't know their credit score -- or even how to find out what it is. A July 2003 survey commissioned by the Consumer Federation of America found that only 2 percent of Americans said they knew their credit score. And only 3 percent could, unprompted, name the three main credit bureaus.

[Warpy]

2. I have no debt and no intention of taking any on

so I paid bills quarterly and did other things to lower the score and discourage identity thieves. Since that didn't work as well as I'd hoped, I just went ahead and froze the thing solid.

Those scores are meaningless, more a measure of how willing you are to assume a ridiculous debt load and service it all in a timely manner. My own low score reflected my solvency, not my credit worthiness.

Eventually, they're just going to have to toss them out as a measure of anything in real life.

[Roland99]

4. Well, getting a mortgage would be more difficult otherwise.

I'm glad I spent the time to clean up some bad things on my report recently.

And, personally, I have no problem with some credit to be used in emergencies (small/moderate car repairs, for example) or for zero-interest for, say, new furniture.

[Warpy]

5. It depends where you are in life

I have the paid for house. It's not much of a house, but it's paid for. It's full of thrift shop furniture that's long on comfort if short on looks. I have cash set aside for emergencies and a junk account with an ATM card for online purchases.

Younger people who don't have these things still have to play the silly credit game. However, it's becoming more meaningless every year and will soon need to be discarded.

[AnneD]

21. Years ago....

When your mortage stay with the lender, there was such a think as manuel underwritting. This was pre FICO. They looked at other things, how long you worked ar your job, your character, your salary, etc. You can still get manuel underwritting, you just have to look for it. I use a credit union and they know me there. I get the benefit of the doubt at time because of my personal relationship.

I prefer to have an emergency fund instead of running to credit cards. Most emergency can be handled for under 2K. We are working to pay off our car loan with in a year and our emergency fund needs to go from 1 month to 3-6 months. If I had to, I would have settled by buying a paid for car for 4000k and been just fine with it.

We are looking for a house and are building a war chest to pay for it in cash. The less interest we pay the better and larger our retirement. We will be going 'outside the system' but I thing it can be done.

Oh, and since I have been getting out of debt and cutting up the cards....our score has gone up. And we don't intend to use it.

[Roland99]

23. Having good (high) lines of credit and low utilization is one key factor in keeping FICO scores up

5-10% utilization is best and also having less than 50% of revolving credit lines with a balance reporting.

But, Average Age of Accounts can be just as important as well as the types of credit. Having some consumer finance (personal loan) won't look as good as, say, a credit card from a national credit union like Alliant or USAA.


Thing is, too many people look to credit cards as free money and don't worry about the consequences.

I've increased my lines of credit by $4,000 in the last month (since I closed on the new house) and just about every bit of that is used up for things the new house needed (window treatments, fridge, washer/dryer, new furniture, lawn mower, etc) BUT, it will be all paid off within 3 months (and before any interest accrues! :) )

A simple Excel spreadsheet is all I've used for years and I've kept myself quite debt-free (other than the car - paid off in 8-9 months and now the mortgage and the short-term credit card debt). I've gotten to where if I don't have the money in the bank so I can use the debit card, then I don't buy it.

[AnneD]

28. Handle credit cards ????????

I would rather stick my hand in a barrel of snakes. But you are right to pay it off early.

Congrats on the house-I am so happy for you. We will soon start our search, but we want to get a foreclosure. We are too close to retirement to pay full price.

[Roland99]

29. That's what I was going to do...

look for a short sale or foreclosure and rent another year but this one came up in a great location and a price I was happy with and the $8k tax credit helped, too. :)

Just prepare for a long, frustrating wait once you submit a bid.

[AnneD]

30. We are happy were we are now....

that will take the edge off the wait.

[Roland99]

32. that certainly helps.

things got a weeee bit cramped on my end. I suddenly found myself with 6 people in a small 2BR apartment. :)

Still feels cramped now. ha!

[AnneD]

35. With your estrogen heavy crowd.....

do you feel like you are growing a uterus. You are nesting pretty heavy there:spray:

[Roland99]

36. omg

LMAO!!


I was considering a vasectomy but I think now I need tubal ligation!!



:toast:

[AnneD]

38. Glad you took it....

in the humorous vein it was intended. I remembered about the girls etc and the nesting dawned on me. Me, well I am post-menopausal so hubby is lucky to be alive some days. :toast:

[Iowa]

22. I agree. There's at least one area where they can still nail people like you and I...

...car insurance. You may already know this, but the bastards use our FICO score to set our car insurance rate. Low FICO = higher car insurance rate. High FICO = better rate. I have not been able to determine precisely how much of a difference it makes. This should be illegal, IMO, but it's perfectly legal in many (if not all) states. I was just reading awhile back that in one state (Michigan?) some organizations tried, and failed, to end the practice.

Like you, I didn't give a rip about my FICO score because I didn't plan to use credit - ever. So I simply stopped using credit. After a number of years, I simply dropped off the radar. When I learned about the car insurance issue, I emailed my local credit union, explained the situation, and asked for a no-fee credit card. I use it periodically and pay it off every month. I have never, and will never, pay a penny in interest. This keeps my FICO score in a range that provides an insurance rate that's pretty close to the best rate.

Anyway, FWIW...

[cbdo2007]

24. Congrats - that is my goal as well.

Once I get debt free which is still a few years off, I'll be happy to just let it sink to Zero.

[Arctic Dave]

6. I guess if people had jobs that paid them MONEY, they would have better scores.

But we have bought into the whole credit instead of money scheme long ago.

[Hawaii Hiker]

13. That's true...People's wages are stagnant

salaries are stuck in 1997 while expenses are in 2010....

As far as credit card scores, that's a game being played by the credit card comopanies....When they lower people's limits, EVEN when they have great credit, that lowering of limits affects people's scores because it inflates your debt/availability ratio....In other words, someone with a $30,000 balance but has $150,000 in total available credit (on all cards) that is a very good ratio....BUT, if the credit card companies lower his/her limits enough, to say $50,000, then that ratio doesn't look so good & thus the score will go down...

[Doremus]

15. Re: salaries .... Adjusted for inflation, today's average is $18/hr vs. $20/hr. in 1979.

Wages haven't stagnated, they are going backwards.

[defendandprotect]

26. Right ... private paychecks and Social Security should be DOUBLE what they are . . ..

Government salaries were hooked to COLA and are 40% higher than private --

that's how they judge that --

Meanwhile, can anyone deny that any dollar you had pre-Bush is now worth 50 cents?

:evilgrin:

[L0oniX]

7. Heh ...I only use credit cards to auto pay for all my utility bills.

That keeps them active and the bills are what I have to pay anyway ...water, sewer, garbage, internet, phone, security, gas and elect. credit score = 758

[KansDem]

8. I have a two-year-old "unpaid" medical bill that is now part of my credit score...

Two years ago, my doctor prescribed a round of tests. I went to the lab and took the tests after giving them my insurance information.

I received a bill for $700 that I was expected to pay. I called and discovered that either my doctor's office or the lab identified my as a "female." The health insurance folks refused to pay because they knew I was a "male." I've gone back in forth with my doctors' office, the lab, and my insurance company. I even had all three on the phone at the same time to straighten this out.

No luck...:(

[Roland99]

11. Medical collections need to be handled differently.

Check this out:

http://whychat.5u.com/hipltr.html
http://creditboards.com/forums/index.php?showforum=39

[KansDem]

16. Thanks!

:hi:

[Dr.Phool]

9. Mine dropped a little because 2 banks I had credit cards with folded.

Both cards had limits of over $20k, and balances of zero, when the banks went under. The cards just sat in a safety deposit box, and did nothing.

[SoapBox]

10. And, was it the Michigan SC that just said that insurance companies can base rates...

on your credit scores?

[truebrit71]

17. Yup. So the scammers scratch the back fo other scammers..

That was a TERRIBLE decision..

[GreenTea]

12. Keep Americans dumb & they'll vote republican-Look at the south-Republicans gut education

funding and programs every chance they get and then say "see" public education is not working....They love people/voters dumb - The republicans know the uneducated, uninformed will believe EVERYTHING the pigman Limbaugh, Fox news, the flag waving, elitist republicans tell them!

The elitist republicans would love it if only the wealthy children were well educated....Keeping the people dumb has been a favorite tool of oppressors since time began and no wants it more nor does it more disgustingly than the slimy regressive republicans.

[Gormy Cuss]

14. Interesting that the high scorers are growing at the same time.

1/4 of consumers have low scores and 1/6 have superlative scores. IMHO I think it's a sign that the scoring model is still using off-base assumptions in the algorithm. FICO scoring has been tweaked in the past. Maybe they should be tweaking it again.

I'd love to see credit scores relegated to minor players in the creditworthy assessment because that is where they belong.

[d_r]

18. insurance

There has been the move (for example, the recent decision in Michigan) to base car insurance premiums on credit scores, because the credit scores predict people making more car insurance claims. I wonder if that model will change with the larger number of people having lower scores? It seems to me the statistics would have to change, but I don't think it will matter to the insurance companies - do you think they will run the models again with more contemporary data? I don't.

[border_town]

19. In Canada

A landlord cannot pull your credit score to determine if they can rent to you. Also, employers should not be able to discriminate employment over a bad credit score. The USA will has to make some major adjustments to what a credit score means and how it can be used. It is the middle class who needs credit more than any other part of society and it is the middle class who is suffering right now. This country cannot survive without middle class buying power.

[Sen. Walter Sobchak]

40. That comes as a big suprise to me

When I first began working in Canada trying to find a place in Ottawa was a nightmare, all the landlords were using a service called TVS Canada that couldn't access my US credit score.

[defendandprotect]

25. What if every unemployed person now took bankruptcy . . .???

[Lost4words]

31. You need to better understand the New Bankruptcy Law.

It dosent cancel your debts as it used to, plus you will have to pay a portion of your debt to a special agent to manage your assetts and STILL payoff debts, oh and to be in that wonderfull situation you will have to pay a Lawyer $1,500.00 or higher.

Bankruptcy is no solutition anymore it does not get a person out of debt.

I have looked into it.

[defendandprotect]

37. That's criminal in itself . . .

And, of course, members of Congress know that --

Too many multi-millioners in Congress -- especially the Senate --

It's organized crime in government!!



PS: I'd just add to this that Congress could amend these laws -- especially to

declare anyone out of work 6 months would have debts wiped out.

[bedazzled]

43. did you look into chapter 7 bankrupcy? sounds like you're talking chapter 13

chapter 7 is a possibility if you have a very low income. it
forgives all of your credit card debt. it's more complex if you
have a house or valuable items you want to keep. then chapter 13
with a replayment plan is a way to go.

you can do it without a lawyer if you are clever and willing
to work. you might even be able to get help through a law school
or legal aid society.

i worked at a place where paralegals would assemble and type up
the forms for you at a reasonable price - about $300. you then
deliver the forms to the court and go from there. total cost about
$700 after all of the counseling and court fees.

[defendandprotect]

27. We also need Dem Congress to get busy on Credit Card interest rates . . .!!!

There's a large canyon between the 26% interest rates some are charging on

balances -- and what the banks are paying customers!!

[mbperrin]

33. FICO is a black box operation designed to move people to ultra-high

rates at payday lenders, your insurance, subprime lenders, and all the rest.

As I tell my students, it would be painful, but okay, if a poor credit score (which no one on the planet can tell you how it was derived) meant that you could get no credit, but instead had to save and buy. But that's not the case. What it means is that the credit you can get it ultra-expensive. Payday lenders, rent-to-own furniture; rent by the week apartments with no lease, higher insurance rates, higher anything they can think of, all due to the power of one little number that they cannot show you exactly how they calculated it.

Some things that lower it: applying for credit (yes, simply applying lowers it); being late in payments (this actually makes sense); using more than 30% of the available credit on your credit cards (why is it called available if you're punished for using it?); tickets for moving violations (huh?); insurance claims (can't have you actually trying to collect now, can we?); unemployment for any reason, including structural ones beyond your control; employment less than 10 years, 5 years, or 1 year on your current job.

Little doubt there are more, but these are ones that have been observed as singular events and a lower FICO score followed. BTW, paying off a collection account doesn't improve your score, either. That account will still be reported for 7 years. Seems fair - don't pay, score lowers; pay, score stays low.

Who benefits? Anyone who wants higher rates for loans, rents, and insurance. Expect most people to be under 600 in the next 4 years or so.

Hey, what does FICO mean, anyway?

FICO (NYSE: FICO), founded in 1956 as Fair Isaac by engineer Bill Fair and mathematician Earl Isaac, provides consulting services and enterprise decision management systems. They developed the FICO scores, a measure of credit risk, which are the most used credit scores in the world. FICO scores are available through all of the major consumer reporting agencies in the United States and Canada: Equifax; Experian; TransUnion; and PRBC.<1> FICO is a registered trademark of Fair Isaac Corporation.

http://en.wikipedia.org/wiki/FICO

[Roland99]

34. Most people don't think twice (or even once for that matter) about their credit and how it works.

Taking a couple days to read online (places like creditboards.com), one can learn much about credit and how FICO scores are calculated and what factors matter more than others and about "buckets" and "segmentation".

But all it takes is a job loss or a major medical problem to throw someone from the 800s down to under 600 in a heartbeat.

[ProudDad]

39. There's a REAL easy way to have a low "credit score"

DON'T USE CREDIT...

Then your score is in the toilet -- and your car insurance rates go up (fuckers!!!!)

Piss on the "Money as Debt" shitty excuse for an "economy"!

[sofa king]

41. Apparently I earned my sub-600 by doing nothing.

Apparently not having or using a credit card results in a terribly low credit score, as I recently learned.

Who would have thought of that?

[Roland99]

42. There are many factors that would lead to a low score

short average age of accounts
no use of credit
high utilization
late payments
collections
public records
use of consumer finance companies
high number of credit inquiries