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Wednesday, July 14, 2010

Consumer Credit Scores Up or Down? The Answer Will Surprise You

Are American consumers' credit scores up or down these days? Surprisingly, the answer is "both", according to FICO.

As expected, the number of American consumers who have poor credit -- a score of 599 or below -- has increased over the last few years, although only by 6% percent, and now stands at 25.5% of consumers. Unfortunately,  the number of those with poor credit will continue to increase in the immediate future. By way of comparison, historically, 15% of Americans have had credit scores of 599 or below.

What is surprising is that the percentage of consumers with excellent credit scores has increased over the last 5 years and now stands at almost 18%. Although that is down from 18.7% in April, 2008, it's still markedly above the historical average of 13%. Why and how have millions of people actually improved their credit scores in this economic environment? Evidence suggests that these folks may have fully perceived the oncoming financial storm earlier than most, and worked hard to reduce their spending while paying off debts.

Those with poor credit scores have difficulty obtaining credit  -- including credit cards, auto loans and mortgages.  Thus, that segment of the population has less access to money, less ability to spend money, and less ability to help get the wheels of commerce speeding along again.

More information can be found at the website www.myfico.com. For those of you wondering, "FICO" stands for Fair, Isaac Company, which is the organization that originally put together a standard of evaluating an individual's credit-worthiness.