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A new report issued by FICO, still the number one company that provides credit scores lenders view to assess an individual’s credit risk, shows a number of interesting facts about the current U.S. economy.
1. More Americans have poor credit than ever before.
2. There are also more Americans with excellent credit than there have been in the past.
3. The number of people with a mid-range score (650 – 699) has dropped.
According to the FICO report, 43.4 million Americans have a FICO score below 599, which is considered poor. This number represents 25.5 % of all Americans. Their poor credit score will make it harder (or impossible) for these people to:
- Get a mortgage
- Buy a car with a loan
- Get an unsecured credit card
- Rent an apartment
- Sign up for a cell phone plan
Additionally, these individuals may pay higher interest rates if they can get credit, and may pay more for car, homeowners’ or renter’s insurance.
Since the effects of financial problems don’t appear on your credit score immediately, the number of Americans with low FICO scores may get worse, according to the AP report. The U.S. Department of Labor says that 26 million people are out of work or underemployed — with many facing foreclosure.
Financial hardship often leads to foreclosure or failure to pay debts, which means millions more credit scores may drop before the year ends.
On the other end of that spectrum, 17,9 percent of Americans (up from the historical average of 13 % and down only slightly from last year’s report) have a FICO score of 800 or more. This shows that many Americans have gotten more conservative in their spending and are learning how to manage their credit better.
It takes effort and financial savvy to raise your score from a 750 to that highly-coveted FICO score of 800 or more. This shows that Americans with good credit are getting even smarter about managing it. They are doing things like minimizing hard inquiries on their credit files, paying close attention to their debt-to-available-credit ratio, and balancing the types of credit they show in their final with a mix of installment loans and revolving credit. They might also be using credit monitoring services to keep track of their FICO score and make sure there are no errors on their credit reports.
Borrowers with a credit score in the moderate range (from 650 – 699) may be hit the hardest by changes to their credit score.
According to the FICO report, this sensitive group makes up only 11.9% of all Americans, but they are the ones who may find it harder to get a mortgage or good rates on a credit card or car loan. A few wrong moves or late payments can put them in the “high risk” category, too.
On the positive side, though, smart money management can see them increase their score to an excellent credit rating of 750 or higher.
But the report is even more telling than that. The real estate market will continue to suffer as it’s harder for people to get mortgages with lower scores — or people may choose to rent rather than paying higher interest rates. Several other industries, including banking, which rely on people borrowing money, will continue to experience problems.
Awareness has already created a mindset shift, and sources are reporting that retail spending has dropped since the report was released.
It’s interesting to compare our FICO scores and see how we stack up against other Americans. But, regardless of what the numbers say, your main financial focus should continue to be paying your bills on time, not charging more than you can pay off within that billing period, and making sure your debt-to-available credit ratio is 50% or lower.[include file=/wp-content/themes/customtheme/rec-creditscore.php]