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Nationwide Credit Scores Fall to New Lows

The credit scores of Americans across the country continue to drop, and almost one in four Americans are now considered a bad risk for lenders, according to numbers provided to the Associated Press by FICO Inc.

According to those figures, about 43 million people have credit scores that are below 599. Credit scores beneath that figure are considered a bad risk for lenders.

The many consumers who fall into this category will likely find it harder to acquire credit cards, car loans and mortgages, especially now that banks have lending standards that are more stringent than they used to be.

The economic recovery could even be slowed by limited access to credit for all consumers. But those with lower scores who in the past have depended heavily on credit and debt for their spending may find it particularly difficult to make big purchases.

FICO gathers its consumer information from credit reports for the month of April. The number represents an increase of 2.4 million people who fell below the 599 credit score mark.

The last few years have seen a dramatic rise in these numbers, as well as more volatility in the lists. In the past, before the current recession, around 15 percent of the population traditionally fell into the lowest tier of credit scores, usually around 25 million people.

There are around 170 million consumers in America with active credit accounts.

According to the Associated Press, it is likely that more people will fall below this credit score marker. A drop in credit scores might be delayed for several months following a misstep. And with those many people in the country facing continued unemployment and impending foreclosure, credit scores will soon be facing more drops. A foreclosure alone can cause a credit score to drop by 150 points. Bankruptcy filings also affect credit scores, and those numbers continue to be at record highs as well.

It could be years before those with less than desirable credit scores are able to rebuild their credit.

The Associated Press spoke with Ritch Workman, a mortgage broker from Melbourne, Florida. He said the tight credit market and low scores made it tough for people to get the loans they needed to buy a home. “I don’t get paid for loan applications, I get paid for closings,” he said. “I have plenty of business, but I’m struggling to stay open.”

The numbers on the good side show that 17.9 percent of consumers have a credit score of 800 or more. This number is well above normal levels, which are generally around 13 percent. However, the numbers are down from the levels they were at before the beginning of the recession, when 18.7 percent of the consumer population had above average credit scores.

The numbers for the middle of the pack, those with moderate credit scores, are at levels that are just below the normal rates. Those with credit scores between 650 and 699 make up 11.9 percent of consumers, down just a bit from 2008 numbers, but more than 5 million people fewer than the historical average, according to the Associated Press.

According to the article, FICO scores are a pretty good indicator of consumer payment behavior, but there are nuances. A lender looking at a credit score can’t always get the full story about why the credit score is where it is.

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