The Credit Gap is Widening

The rocky economy is polarizing our nation’s consumers when is comes to credit scores. The latest study from FICO Inc. found that there are more and more Americans with really poor credit scores and really good scores, but fewer and fewer people with scores in the middle.

There are now 25.5 percent, more than a quarter, of all American consumers whose credit scores fall under the “bad credit” category, a score of 599 or below. That accounts for 43.4 million people who are going to have a REALLY hard time getting mortgage loans, credit cards, and car loans for the next few years.

That number also represents a jump of about 2.4 million more poor credit consumers since 2008. And by comparison, according to the Associated Press , only about 15 percent of Americans historically have poor credit. So its no wonder that with so many people now ineligible for credit, or at least credit at affordable rates, the economy is sluggish. There are simply millions more people unable to contribute their normal share to U.S. spending.

And don’t look to the other side for help either. It’s true that the number of those with excellent credit – scores of 800 or above – has increased in the past two years, up to 17.9 percent of consumers, from a historical average of 13 percent. Still, don’t expect to see those folks stepping up their spending anytime soon. Many of them got those improved credit scores by paying off their cards and other loans, and cutting spending in general.

So those with middle to middle-low credit scores will probably end up feeling more of the economic pinch, since the bottom 25 percent will basically drop out of most major loans for a year or two and this middle group will be subject to the lending industry’s strictest standards. They say the economy is getting better, but with numbers like these from the FICO report its easy to see things stalling out for a while, certainly not swinging back upward.

2 Responses to “The Credit Gap is Widening”

1. Constant says:

   July 26, 2010 at 9:19 am

   FICO has really screwed up. My scores were running in the mid 700 for years, then in 2008 I modified my mortgage, since then FICO reports my account as late and delinquent bringing my score down to low 600. Have made payments on time since modifications. FICO scoring stinks, it’s not a true representation of your ability to control personal credit.
2. mathew21 says:

   August 9, 2010 at 7:03 pm

   FICO scoring stinks, it’s not a true representation of your ability to control personal credit.
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