Millions of Americans’ credit scores are sinking to new lows, the Associated Press reported yesterday. Data provided by FICO Inc. shows that 25.5 percent of consumers now have a credit score of 599 or below, marking them as poor risks for lenders. This could lead to those consumers being denied credit cards, loans or mortgages.
It is expected that even more American consumers will join them since it can take months before missteps hurt a person’s credit score. According to the Labor Department, about 26 million people are unemployed, which means more people will likely begin to face financial problems such as foreclosure.
In the past, lenders approved applications based on the applicant’s credit score, without taking into account the applicant’s ability to repay the loan. Today, lenders are imposing more stringent requirements on the applicants.
FICO’s data 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 current recession, only 15 percent of consumers with active credit accounts fell below 599, according to data posted on Myfico.com.
However, there are signs of hope. In recent years, consumers with a credit score of 800 or above have increased, now at 17.9 percent from the historical average of 13 percent. This suggests that more people have learned to cut spending and pay down their debt in response to the recession. The percentage of individuals with credit scores between 650 and 699 have shifted favorably as well.
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