The norm is not tighter lending standards and lower credit scores

Credit scores are falling to new lows for millions of Americans. Lower credit scores and tighter lending standards have economic recovery caught between a rock and a hard place. Figures provided by FICO Inc. show that 25.5 percent of consumers — about 43 million individuals — now have a credit score of 599 or below. Consumers can’t get auto loan financing, credit cards, and also the mortgages that economic recovery is counting on.

Categories that are the lowest with credit scores have millions in it

Low mortgage rates and other optimistic things happening seem to be cancelled out by plunging credit scores. FICO findings show us that you will find really 2.4 million more people within the lowest credit score categories now than before the recession began as outlined by the Associated Press. Below a 599 score there used to only be 15 percent of 170 million consumers, 25.5 million people. Cash till payday advances, personal loan, and installment loans are the only short term credit alternatives these consumers have.

Individuals with low credit scores need a lifeline

Already at record lows, the number of consumers with credit scores below 599 is expected to increase. Months can pass before a credit score is driven down by missed payments as outlined by the Associated Press. Underemployed or out of work individuals has hit 26 million according to the Labor Department. Just a simple foreclosure of a home takes your score down 150 points. Once the damage is done, it could possibly be years before this group can restore their credit scores, even with a strong short-term credit history. Fortunately, with access to short term credit alternatives, they won’t be completely left out within the cold.

Lending standards lowering credit scores

Many credit scores are lowered even more by banks. Banks are hurting credit scores by cutting credit lines and increasing interest rates, as outlined by creditcards.com. This happens because FICO scores compare debt levels to credit limits. Lower credit lines make it look like a borrower is closer to being maxed out when they haven’t increased their debt at all. It is harder to settle debt with higher interest rates. And for a personal loan to help pay the bills, they can forget about talking to their bank.

Is the economic recovery ever going to happen with credit so difficult to get?

The credit fueled economy was bound to fall as that is what consumer spending was depending off of. The economy can’t recover because of all the low credit scores shown within the latest FICO report, according to the Dallas News. If people aren’t able to help with economic growth by giving businesses reasons to hire workers, then the economy won’t be able to grow. If the economy is going to get better, Americans have to spend more, improving their credit scores. It can be interesting to see since the economy always has and will continue to be driven by consumer spending.

Citations

Associated Press
google.com/hostednews/ap/article/ALeqM5g74qg6iCDzFlCHhjsiBGFIHAiJPQD9GTIVU80
Creditcards.com
blogs.creditcards.com/2010/07/fico-credit-scores-fall.php
Dallas News
dallasnews.com/sharedcontent/dws/dn/opinion/editorials/stories/DN-ourcredit_00edi.State.Edition1.6ff689.html