Despite reports of the overall economic rebound, individual consumers aren’t feeling it. The credit scores of millions more Americans are sinking to new lows.
Figures provided by FICO to The Associated Press 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. As a result, according to AP, it’s unlikely they will be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use.
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 economic crisis, 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% 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, the AP report notes. 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 could restore their scores, even if they had strong credit histories in the past.
However, it’s not all doom and gloom. FICO reports 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.