Our credit scores, ourselves?
The Great Recession's done a lot of damage to a lot of formerly credit worthy people. With no job and no home equity, it's going to be tough to get credit.
FICO -- the Minnesota-based company that created the score that basically determines our credit worthiness -- reported recently that consumers scores have been drifting lower in the recession.
We wanted to try to get beyond that fact and open a broader discussion about the scores and what you've experienced.
Tell us a real-world story about trying to get credit and trying to understand your FICO score.
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We'll share some of those stories in upcoming posts. But we need to hear from you.
Most of the stuff we've heard about credit scores revolves around the confusion of trying to find your score compounded by the frustration of trying to figure out why the number was falling.
Bonnie Creason of Minneapolis, a source in MPR's Public Insight Network, told us last year her score fell for reasons she didn't understand.
"Nothing with me has changed and I actually make significantly more than I did a year ago. I'm baffled and angry that my score has dropped 40-100 points," she told us, adding that she'd been calling the reporting agencies to find out why. We'll be following up with her and will post any updates.
Here's FICO's chart showing scores and the percentage of Americans in each category
We didn't really know what to make of it but found a great analysis at Creditbloggers.com
John Ulzheimer, president of consumer education for Credit.com wrote the score changes are the most significant in nearly two decades with more people scoring below 650 than ever before.
1. There are two reasons why scores would have migrated toward the lower end of the scoring scale; negative information hitting a credit report or a run up of credit card debt. This means that more and more consumers are feeling the hit because of credit card defaults, mortgage defaults and repossessions. And those who have lost their jobs are depending more heavily on credit cards to make ends meet. This is bad news because it's clearly not sustainable.
2. The news is actually worse for those who now score below 650 than those who score below 600. The percentage of people who score below 600 shouldn't be a focal point because those folks aren't even close to being approved for loans in today's credit world. 650 is a more realistic focal point and the percentage of people who now score below that score mark is 35%, which means that more than one-third of the U.S population is not credit-worthy for anything other than a subprime credit card or a subprime loan. This is a big deal.
3. What this means is fewer people will apply for new loans because they either won't be able to afford the payments, won't get approved or won't want to pay higher rates.
4. It also means more people will pay more for homeowner's and auto insurance because insurance companies generally use credit scores to help them set premiums.
5. More bad news: Scores this low (<650) are generally not actionable, meaning they take a very long time to improve because the negative info that's causing the lower score stays on file for 7 years. So, if we're expecting these 35% who have FICO <650 to participate in any sort of large scale economic recovery - good luck.
One of the more worrisome aspects is whether people in credit trouble are spending money to find or fix their credit history.
Two good resources are the Federal Trade Commission's web page on consumer credit and credit scoring and its page on how to obtain your free credit report.
Annualcreditreport.com is the only official place to obtain a free credit report. The other place, freecreditreport.com does the funny singing guy ads but may also try to sell you stuff.
I almost made the same mistake.
So help make us all a little smarter. Share your credit score story and what you've learned.
These guys sing about credit reports too, but they're authorized by the Federal Trade Commission!