Credit scores falling, more Americans lose borrowing power

While the Dow Jones Industrial Average has crept back to around 10,000 and recent data indicates that fewer consumers are defaulting on their credit card bills, new data issued by FICO shows a very disturbing trend. Roughly one-quarter of all Americans now have credit scores below 600, while more than one-third of us have scores below 650 - the historical dividing line between prime and subprime. Meanwhile, the percentage of Americans with FICO scores above 750 has dropped since the period before the recession.

Of the sub-600 category, FICO spokesperson Rachel Bell tells Walletpop via email, "We have observed a steady growth in this population since 2006." The downward slide has ramifications for individual Americans' finances as well as the economy as a whole, she adds. "More consumers falling into the lower part of the score distribution means that fewer consumers will qualify for new credit, those that do qualify will likely not receive the best interest rates," she says. This could lead to decreased spending in the future, which would crimp our economy's already-sluggish recovery.

Worse yet? These abysmal scores are probably going to be with us for a while, says John Ulzheimer, president of consumer education for "The reasons why consumers have scores this low isn't because a little bit of credit card debt you can write a check and erase," he tells Walletpop. "These are caused by negative information, which stays on a credit report for seven to ten years. This is not something that's going to go away in a year," he says.

What's more, Ulzheimer adds, the still-dismal employment outlook means that fewer Americans have fewer options for paying their bills and keeping their heads above water financially. "In order to make your payments on time, you have to have income," he says. Ulzheimer says he is concerned that when the millions of Americans who now have marginal credit due to the recession try to take out a loan, the terms will be so onerous that they won't be able to shoulder the burden -- something that would damage their already-tarnished credit even further.

"I like to think we're at the bottom," he says, "But I think that's optimistic."
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