Americans struggle with credit following recession…
According to a report provided by FICO Inc., over 43 million Americans (25.4%) have a poor credit score of 599 or lower (based on consumer credit profiles). This is an increase of 70% compared to figures compiled before the recession. The analysis by Fair Issac is based on consumer credit reports as of April 2010 and represent an increase in the last two years of nearly 2.4 million people in the lowest credit score categories. The report also shows that fewer consumers fall within the moderate range of 650 and 699 (11.9%). Bankruptcy filings continue to be at record highs, as well.
A surprise finding is the increase in the number of people with scores above 800. Some cnsumers have reigned in their spending and have begun to pay down debt. Prior to the recession 18.7% of consumers fell into this category and although the current percentage is lower at 17.9%, it is ahead of the 13% historical average.
The FICO scores range from 300 to 850, with a score of 750 or above considered excellent and a low risk for lenders. Consumers with poor scores will find it more difficult, and now with tighter lending standards nearly impossible, to qualify for a mortage, auto loan, credit account, insurance, and even employment. With 26 million Americans unemployed and mortgage foreclosures at record levels, consumer scores are dropping on average by 150 points. The resulting damage can take years to recover, even for those who had strong credit in the past.
Although studies have shown that FICO scores are generally reliable predicters of consumer behavior, some experts assert that too much emphasis is placed on credit scores with little consideration of the amount of debt a consumer has to pay back. Lenders can no longer look to a credit score to see the full financial picture of an individual; the pendulem has swing so that the ability to repay is a critical part of any credit decision.
* Be sure to see a complete list of credit cards for poor credit >