Sinking credit scores

Wednesday, November 3, 2010

The credit scores for millions of Americans are not looking good these days. FICO Inc., the company responsible for calculating our FICO credit score from our credit reports, released the data from an analysis done on our April 2010 reports.

FICO Inc. reported that 25.5% of people with a credit report in the USA have a credit score below 600. The number of people in this group is rising. Historically only 15% of the consumer population has been in this under 600 group. This score puts them in the ‘poor’ credit category. Lenders consider these people risky to loan money to. These people will not be approved for loans and it will take years to repair their credit reports in order to do so.

Another 9.5% of consumers are between 600 and 650. This is a dangerous place to be. This score puts them in the ‘fair’ category. In the past, lenders considered them a great catch since they could give those loans at much higher rates. When you are this close to a ‘poor’ score you have fewer options and the lenders know this. However, now lenders do not want to lend money to people in the 600 to 649 range. The data shows that our scores are sinking and this group is likely to slip into the ‘poor’ credit category soon.

The report also showed that 11.9% of the consumer population is between 650 and 699. This group of people is considered to have ‘moderate’ credit scores. The problem for these people is that they are now going to be treated as the ‘fair’ people once were. They will be approved for loans, but at much higher rates than before. This score represents a stable person that has a good history with loans and credit. Because of the trends in scores they are now going to have to pay more. They have done nothing wrong and in fact should be congratulated for earning a ‘moderate’ score in this economy. But no, they are going to be charged higher rates instead since their population is shrinking.

Now for the rest of the report…15.7% of today’s consumers are between 700 and 749 labeling them with ‘good’ credit and the other 37.4% are 750 or above which lands them in the ‘excellent’ credit category. Historically this is the way it has always been. No big changes in these two groups. These people are still eligible for the lowest rates on loans and are easily approved. They have these scores and have been able to maintain these scores. Their population is not shrinking which shows lenders that they are stable and holding strong in this economy. They win.