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The
Los Angeles Times reports Credit scores sink
to new lows.
Battered
by unemployment and tighter lending standards, the credit scores of millions
of Americans are sinking to new lows.
About 25.5% of consumers — or 43.4 million people — had credit
scores below 600 in April, according to FICO Inc. Historically, only about
15% of consumers — or 25.5 million — have had scores below that
level, FICO said.
Those in the middle of the spectrum have also declined. Moderate credit
scores, between 650 and 699, fell to 11.9% from a historical average of 15%.
Consumers with low credit scores will have increased difficulty obtaining
credit cards and other loans, said Christian deRitis, director of credit
analytics at Moody's Analytics.
"Until the labor market turns around, people will remain unable to pay
bills," DeRitis said. "Lowered consumption will only add extra
friction to the economy."
The calculation for FICO scores considers two factors: how consistently bills
are paid and how much available credit is in use. Slow or delinquent payments
and high amounts of debt result in lowered scores.
Inquiring
minds might be interested in charts of consumer credit and revolving credit.
Total Consumer Credit
Total Consumer Credit - Percent Change From Year Ago
Total Revolving Credit
Total Revolving Credit - Percent Change From Year Ago
Those chart are unprecedented.
Reasons
·
Banks
are curtailing new credit
·
Customer
attitudes towards borrowing have changed
·
Bank
writeoffs of consumer credit have increased
·
Troubled
consumers are paying off their credit cards and defaulting on their house. Historically, the
reverse was true
The big factor is attitudes. A secular peak has turned. Think of attitudes
like a pendulum. This trend has a long way to play out.
Mish
GlobalEconomicAnalysis.blogspot.com
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