Are credit scores rising?
More people are making their loan payments on time, which should have a positive effect.
This post comes from Gerri Detweiler at partner site Credit.com.
A recent FICO survey finds that lenders are predicting fewer delinquencies on mortgages, small-business loans, auto loans and credit cards. If those predictions prove to be accurate, then consumers' credit scores may also continue to improve.
The survey, conducted for FICO by the Professional Risk Managers' International Association, found fewer lenders expecting a rise in delinquencies on home loans, car loans and small-business loans than at any time since FICO launched its survey in early 2010.
Payment history makes up about a third of credit score calculation. So if fewer consumers are paying late, it stands to reason that their credit scores could benefit as well. "What we should expect to see is a small upward movement in the credit score distribution," says Andrew Jennings, the chief analytics officer at FICO. "If delinquencies fall, therefore people are making more payments on time that should translate into better health of the credit population."
Post continues below.
In the earlier days of the recession, FICO reported that "lenders saw a sizable increase in the number of consumers who scored in the lowest (300-499) and the highest (800-850) segments of the FICO score range." But FICO reported a reversal in that trend after 2008, noting that "consumer scores have moved away from the tails of the distribution curve, and 2.8 million more consumers have scored in the 550-649 range." (Estimate your credit score for free.)
Of course, it takes more than a drop in delinquencies for credit scores to improve. Negative information can remain on consumers' credit reports for seven years in most cases. As it gets older, this information often has less of an impact on credit scores, but it does factor into credit score calculations. Still, even those consumers who have been through very difficult financial problems can begin the process of rebuilding their credit once their situation is stabilized. And paying bills on time is the first step.
It takes credit to get credit
A current on-time payment history is essential to building strong credit. For those borrowers who are ready to get back in the game, the good news is that lenders are making credit more available. "The sentiment that comes out of the survey is that in particular in credit card and auto lending . . . supply will be there," observes Jennings.
The key, of course, will be for consumers to borrow cautiously so new loans don't create future late payments.
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Dumb story. It mentions, "In the earlier days of the recession, FICO reported that "lenders saw a sizable increase in the number of consumers who scored in the lowest (300-499) and the highest (800-850) segments of the FICO score range." But FICO reported a reversal in that trend after 2008, noting that "consumer scores have moved away from the tails of the distribution curve, and 2.8 million more consumers have scored in the 550-649 range."
But what it doesn't mention is that for many consumers, this was out of their control since financing dired up and financial instiutions cut borrowing limits, which increased individual credit to debt ratios which is also a factor in determining credit scores. In some cases baks raised interest rates in an effort to recover losses and "motivate" borrowers to pay debt. This created additional burdens on borrowers. One thing leads to another (no credit ceiling, no additional sources of financing, high interest on current debt); poor credit scores, spend what you make to pay down now high interest debts. Consumers go broke paying down debt or default. Then the financial gurus and economist wonder why there's an economic slow down and so much ire for the financial institutions??
The real truth in the article is "It takes credit to get credit" (because that's how they set it up). Because they have so easily thrown people under the "Transunion" bus in the past, it has now back fired on them. People have learned how to use credit as little a possible if at all. They have learned how to live within their means, so that the "credit" industry is now hurting for business. If they are raising the scores, it's only to trap people all over again. Just like they inflated home values, then gave people loans against the inflated false value which landed the owners in debt and owing more than the value of their house (Old con-artist trick). If you are smart, you won't get back on that treadmill. Never take out a loan against what you already own. Save like crazy and do things a little at a time.
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