The Fair Isaac Corporation (FICO), which develops the primary formula used to calculate credit scores, released data this week on changes to credit scores during the economic turmoil of the last several years. The report shows credit score distribution from 2005 through 2011 and indicates that, on average, our credit scores have not changed significantly since the collapse of the housing market in 2007.

If that sounds fishy to you, don’t worry: the term “average” here is meant mathematically. Individual credit scores fluctuated in various ways:

• More people in the highest group: In 2005, when the stock and housing markets were still going strong, 16.9 percent of Americans had a credit score in the highest range (800 to 850). In 2011, though, the highest-scoring group has swelled to 18.1 percent.
• More people in the lowest group: In 2005, people with credit scores between 350 and 599 stood at 23.6 percent of the population. This year, the number has risen to 24.9 percent. Early in the recession, people with the lowest scores (350 to 499) jumped, too, though that percentage has leveled out in the last two years.
• Fewer people in the middle: Those with credit scores between 600 and 799, usually considered to be in the middle of the credit scoring pack, saw their numbers decrease between 2005 (59.5 percent) and 2011 (56.5 percent).

Making Sense of the Numbers

While the findings at first may seem confusing or counterintuitive, there is a satisfying explanation behind the shift toward the extremes of the credit-scoring spectrum during a downturn.

• The strong shore up: People who already have fairly strong credit scores tend to be more financially secure than those with lower scores. When the economy sours, these people tend to pay down debt more quickly than they might have otherwise, save more money, and avoid new sources of credit. These actions not only prepare them for potential financial road bumps (such as unemployment) but also improve their credit scores.
• The weak struggle: People already overextended on credit tend to be less financially secure and may be hurt especially hard by tough economic times. Job loss, reliance on new lines of credit and unexpected expenses could cause this group even more financial distress, thus lowering their scores further.

Individuals close to either end of the spectrum may move further toward that end in tough times, thus lowering the total percentage of folks in the middle.

Individual Habits Most Important

Another important factor in determining credit scores is a person’s individual spending and saving habits. Because these tend not to change much regardless of external forces, recessionary times might not affect credit scores as much as they affect other economic indicators such as home prices and interest rates.

The credit rating agency Standard & Poor’s made waves last week when it announced that it had downgraded the outlook on U.S. debt from “stable” to “negative,” leaving many ordinary Americans wondering what the change means for the economy and how debt rating works in the first place.

Here’s a look at what our country’s debt rating might mean in future months and how that rating is like an individual credit score.

Rating the U.S. Debt

Currently, the United States has a credit rating of AAA, which is the highest rating possible. This rating indicates that the U.S. is a stable country and is likely to repay any loans it takes out. But there’s more to the story.

• Outlook on U.S. debt: While the other two major credit rating agencies (Moody’s and Fitch Ratings) have not announced any changes to their ratings on the outlook for U.S. debt, Standard & Poor’s downgraded that rating last week, citing as one reason the continued inability of Congress to make a decision regarding the long-term future of spending policies.
• A warning move: While the change in the outlook rating does not officially alter the country’s credit rating, it serves as a warning and reminder to legislators and others in positions of power that the country’s financial stability and credibility on the world stage are at stake.
• Potential for positive impact: Some commentators have mentioned that the changed credit rating could actually prove beneficial to the country, as it may push Congress to act swiftly (and without unnecessary political posturing) in taking steps toward changing financial policy.

The Parallel with Individual Credit Ratings

As anyone who has ever file for bankruptcy, applied for a mortgage or thought about borrowing money for a car knows, individuals have credit ratings too. And, as with the credit rating for the United States, credit ratings for individuals are used to help lenders and investors determine whether or not to lend money to a person and on what terms.

If Standard & Poor’s actually downgraded the country’s credit rating, it would have a similar effect on the nation as seeing a drop in a credit score would for an individual. In other words, the U.S. would have more difficulty borrowing money and could suffer a variety of financial consequences.

So how can a country (or an individual) keep its credit rating as strong as possible?

• Pay bills on time.
• Pay down as much debt as possible.
• Try to keep credit usage low (that is, stay well below the limit).
• Keep old accounts active (but not maxed out).
• Contact creditors before bill due dates if there is ever reason to expect inability to make timely payments.

Consumer credit use has dropped since the beginning of the Great Recession, which seems like good news for a country plagued by excessive consumer debt (often in the unhealthy, revolving credit-card type), as a recent report from Credit.com notes.

Here’s a look at some potential causes of that dip and how you can resist the urge to spend, even if you’re surrounded by good-time plastic-swipers.

What Do Lowered Credit Card Debt Numbers Really Mean?

The easy assumption is that Americans are purchasing less on credit and/or paying down the debt they currently have. But, according to some insiders, that may account for only part of the decrease in credit card debt we’ve seen lately. Here are some other potential causes:

• Credit card issuer charge-offs: Credit card companies make a lot of money from fees and interest, but they also end up "charging off" a lot of debt each year. Of course, they can afford to do this because of all the other income they collect, but still. When a customer files for bankruptcy and has her credit card debt forgiven by the court, the company generally writes that off as lost revenue. Similarly, if a consumer simply cannot pay, the issuer may sell the debt to a collection agency and charge off that debt. These numbers may not show up in the report of how much credit card debt Americans are currently holding, so we may have racked up more than we actually have to pay off.
• Tightened lending standards: Another result of the credit crisis we’ve found ourselves in is that lending standards for ordinary Americans have gotten tighter than ever before. This means that, even if an ordinary consumer may want to take on more debt, he may not be able to because nobody will lend to him. While this reads on a numbers-only report like lowered consumer debt, it can be a bad thing if consumers need access to lines of credit to buy cars or homes.
• New credit card rules: Finally, some analysts have suggested that the new rules introduced by the Credit CARD Act have given consumers a better idea of what they’re getting themselves into when they sign up for credit cards, and thus acted as a preventative measure against excessive consumer debt.

Climb Aboard the Less-Debt Ship

So how can you take advantage of this trend to help improve your personal financial situation? Check out these tips on avoiding over-spending when you’re out with non-frugal buddies. Suggestions include:

• Stick with cash so you don’t get caught with other people’s meals or drinks on your card;
• Pretend you’re coming down with something to avoid being pressured into pricey drinks with dinner;
• Think up something big you can say you’re saving for to avoid endless purchases… and then really save; and more.

No matter what your reasons for improving your financial profile, these tips should help you get a head start.

Though the U.S. economy is certainly not in top health just yet, a number of indicators suggest that we may be pulling out of this recession – but that may be a mixed blessing for many consumers.

Two recent reports (one from the Federal Reserve and one from CareOne Services) suggest that Americans have started spending more, which may be good for the economy overall, but could be a bad thing for individual debt loads.

Consumer Debt, State by State

The CareOne Services report examined 135,000 people across the country who were active in some sort of debt management program in 2009 or 2010 and found that, among that group, the average debt load was more than $10,000 in every state.

Here’s a look at the top of the heap for unsecured debt in the U.S.:

• Delaware: Average consumer debt is $20,233, spread over seven creditors.
• Rhode Island: Average consumer debt is $20,130, spread over seven creditors.
• Maine: Average consumer debt is $19,454, spread over six creditors.
• Alaska: Average consumer debt is $19,225, spread over six creditors.
• Colorado: Average consumer debt is $18,811, spread over six creditors.
• South Dakota: Average consumer debt is $18,707, spread over seven creditors.
• North Carolina: Average consumer debt is $18,536, spread over six creditors.
• Connecticut: Average consumer debt is $17,334, spread over six creditors.
• Wisconsin: Average consumer debt is $16,903, spread over five creditors.
• Alabama: Average consumer debt is $16,591, spread over seven creditors.

The ten states that had the lowest debt totals for those seeking debt settlement or debt management services are:

• California: Average consumer debt is $12,801, to five creditors.
• Michigan: Average consumer debt is $13,328, to five creditors.
• Mississippi: Average consumer debt is $13,512, to six creditors.
• Vermont: Average consumer debt is $13,707, to five creditors.
• Missouri: Average consumer debt is $13,737, to six creditors.
• Indiana: Average consumer debt is $13,945, to five creditors.
• Kentucky: Average consumer debt is $14,028, to six creditors.
• Iowa: Average consumer debt is $14,099, to five creditors.
• Virginia: Average consumer debt is $14,194, to five creditors.
• Tennessee: Average consumer debt is $14,222, to six creditors.

Increased Spending, Increased Debt, Increasing Need for Debt Relief?

During the holiday season, many economists seemed cheered by the increases in consumer spending, but personal finance advocates may find the same numbers troubling. The Fed’s report shows that our nation’s revolving debt (which basically means credit card debt) rose by 3.5 percent in December of last year.

Further, though our total amount of revolving debt apparently dropped in 2010, it dropped by a smaller amount than in 2009. This could mean that people are optimistic about the job market and the economy in general, but it could also mean they’re turning to their credit cards for necessities they can no longer afford thanks to rising prices or decreased income - and risk taking on more debt than they can handle and heading towards bankruptcy.