http://articles.moneycentral.msn.co.../news.aspx?feed=OBR&date=20100712&id=11695625 NEW YORK (AP) - The credit scores of millions more Americans are sinking to new lows. Figures provided by FICO Inc. show that 25.5 percent of consumers â nearly 43.4 million people â 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. Because consumers relied so heavily on debt to fuel their spending in recent years, their restricted access to credit is one reason for the slow economic recovery. "I don't get paid for loan applications, I get paid for closings," said Ritch Workman, a Melbourne, Fla., mortgage broker. "I have plenty of business, but I'm struggling to stay open." FICO's latest analysis is based on consumer credit reports as of April. Its findings represent an increase of about 2.4 million people in the lowest credit score categories in the past two years. Before the Great Recession, scores on FICO's 300-to-850 scale weren't as volatile, said Andrew Jennings, chief research officer for FICO in Minneapolis. Historically, just 15 percent of the 170 million consumers with active credit accounts, or 25.5 million people, fell below 599, according to data posted on Myfico.com. 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 percent, which is notably above the historical average of 13 percent, though down from 18.7 percent 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 percent of scores. This is down only marginally from 12 percent in 2008, but reflects a drop of roughly 5.3 million people from its historical average of 15 percent. This group is significant because it may feel the effects of lenders' tighter credit standards the most, said FICO's Jennings. Consumers on the lowest end of the scale are less likely to try to borrow. However, people with mid-range scores that had been eligible for credit before the meltdown are looking to buy homes or cars but finding it hard to qualify for affordable loans. Workman has seen this firsthand. A customer with a score of 679 recently walked away from buying a house because he could not get the best interest rate on a $100,000 mortgage. Had his score been 680, the rate he was offered would have been a half-percent lower. The difference was only about $31 per month, but over a 30-year mortgage would have added up to more than $11,000. "There was nothing derogatory on his credit report," Workman said of the customer. He had, however, recently gotten an auto loan, which likely lowered his score. Studies have shown FICO scores are generally reliable predictions of consumer payment behavior, but Workman's experience points to one drawback of credit scoring: the automated underwriting programs lenders use can't always differentiate between two people with the same score. Another consumer might have a 679 score because of several late payments, which could indicate he or she is a bigger repayment risk. But a computer program that depends just on score won't consider those details. On a broader scale, some of the spike in foreclosures came about because homeowners were financially irresponsible, while others lost their jobs and could no longer pay their mortgages. Yet both reasons for foreclosures have the same impact on a borrower's FICO score. In the past too much credit was handed out based on scores alone, without considering how much debt consumers could pay back, said Edmund Tribue, a senior vice president in the credit risk practice at MasterCard Advisors. Now the ability to repay the debt is a critical part of the lending decision. Workman still thinks credit scores alone play too big a role. "The pendulum has swung too far," he said. "We absolutely swung way too far in the liberal lending, but did we have to swing so far back the other way?" ----------------- Still in the minority...I don't think much will be done until numbers like these hit 40+% where it gets impossible to begin to do business. Either that or start working on the next generation
Let's not blame the thermometer for the weather. It's not low credit scores that are the problem, it's that people were able to take on more debt than they could repay.
All part of the plan as the following will illustrate. It, was and is with intent that "they" are intentionally taking a wrecking ball to credit scores. This allows "them" to charge higher interest rates. All part of the scam. "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 percent of scores. This is down only marginally from 12 percent in 2008, but reflects a drop of roughly 5.3 million people from its historical average of 15 percent. This group is significant because it may feel the effects of lenders' tighter credit standards the most, said FICO's Jennings. Consumers on the lowest end of the scale are less likely to try to borrow. However, people with mid-range scores that had been eligible for credit before the meltdown are looking to buy homes or cars but finding it hard to qualify for affordable loans. Workman has seen this firsthand. A customer with a score of 679 recently walked away from buying a house because he could not get the best interest rate on a $100,000 mortgage. Had his score been 680, the rate he was offered would have been a half-percent lower. The difference was only about $31 per month, but over a 30-year mortgage would have added up to more than $11,000. "There was nothing derogatory on his credit report," Workman said of the customer. He had, however, recently gotten an auto loan, which likely lowered his score."
True but the FICO is a screwy way to measure credit as the example above shows, 680 was 1/2% lower loan rate than a 679, stupid. Also when people cancel credit cards that lowers their FICO, again stupid. Sometimes having a very old bad credit mark on your report removed lowers the score.
All true and worse. Let's say someone had a credit card with a 10K limit, carrying a 3K balance. Not smart, but this is where most people were at, or worse. After destroying the economy, "they", quite arbitrarily, lower the limit to 5K. You are now carrying a balance due which exceeds 50% of your limit. You have done nothing wrong, haven't changed a thing, and yet your FICO will take a hit. I cannot understand why younger people are not in the streets burning this country to the f'n ground. Me, I don't give a shit anymore. I'll never take another home loan. I'll die where I'm at. I'll never buy another new car, and what I do buy I'll pay cash. I'll never carry a credit card balance, use the card for gas purchases and other monthly crap, pay it off monthly and "they" are happy getting their piece of the action from the retailers. But the younger crowd are getting stiffed in a big way. "They" are robbing you of any chance to prosper in any way, shape or form. If you're under 40, Ya'll should be rioting in the streets.
The median credit score is about 580 or something like that. That means that more than half of Americans are not credit worthy... I think that a bk will disqualify you from some Prop Shops but bad credit score won't so much since you are ponying up some cash to join in... I always recommend just defaulting and fighting it out with the collections people over bk for that reason...
The Fair Isaac corporation has hundreds of millions of data points that prove their formula correct. What may seem arbitrary to you and me, all of the "hey that's not fair" kind of stuff that you mention, they don't put in there to randomize their results. All of it has a basis in statistical fact. If canceling a credit card lowers your score, then they will be able to show you, statistically among millions of people, that when someone cancels a credit card they become more likely to fall behind in payments or greater chance of default. They don't publish why, nor do they care. Fair Isaac has no reason, no incentive to monkey with their criteria and turn out anything less than the most accurate results possible. Their clients are the people who loan money. Completely different situation from Moody's et al., where the creators of the instruments wrote Moody's the check; they had an obvious incentive to inflate the ratings of the underlying. If they didn't, Moody wouldn't get hired to do ratings.
The Fair Isaac corporation has hundreds of millions of data points that prove their formula correct ---------- I'm curious as to what of few of them are. I wonder where employement fits in, 9job security, might not). I'd like to see price of oil (or energy) and how that relates to ability to pay across the board. We all know that if you inherit 1m dollars your credit score is not going to change. ps Probably none of this matters for fico.
I did refi mortgages for a while, and some people just couldn't wrap their heads around a credit score. FICO looks only at credit, your borrowing habits and repayment habits; not your job (that's revenue), not how you balance your checkbook (that's how you manage your cash), or anything else. All of that other stuff is indeed part of the big picture that a lender puts together to decide if they are going to loan you money.