Consumers still struggling with lower credit scores

Currently, millions of consumers are still working to improve their credit scores that were badly damaged during the recent economic downturn, and now experts say that their inability to boost those ratings appreciably may be a result of the slow recovery.

During the first two years of the recession (2008 and 2009), millions of Americans saw their credit ratings either slip into the lowest rating range possible and the highest, and move away from the middle, according to new data from the credit scoring bureau FICO. Since that time, it seems that many Americans have not been able to raise their scores back to the points at which they found themselves prior to the onset of the recession.

What the numbers say
The proportion of consumers who have brought their credit scores up to the range between 600 and 749 through April 2012 has remained relatively static since the recession ended, and are still not quite at levels seen prior to its onset, the report said. For instance, 10.1 percent of people have a rating between 600 and 649, compared with 9.5 percent in 2009, but down from 10.2 percent in 2006.

Further, there has only been a slight uptick in the number of consumers with ratings between 650 and 699, as well as the 700 to 749 range, the report said. The former group has seen numbers improve to 12.2 percent from 11.9 percent in 2009, but is still below the 12.5 percent seen in 2006. The latter group has only climbed to 16 percent from 15.9 percent in the last three years, and likewise is down from 16.3 percent six years ago.

However, the number of people who have credit ratings of between just 300 and 499, the lowest group, has gotten appreciably smaller, the report said. In all, just 5.7 percent of consumers fall into this range today, compared with 7.3 percent in 2009 and 6.5 percent in 2006.

A closer look
As for the number of people in the lowest range of the credit rating spectrum, it's entirely possible that two factors were at play, the report said. For one, many may have noticed how troublesome their credit situations were and took steps to improve their financial habits. However, a far larger number might have seen their scores fall so considerably that they were simply forced out of the borrowing system entirely. In all, there are 800,000 fewer people in the lowest range today than there were in 2005, well before the recession hit.

Meanwhile, the number of consumers in the highest credit range, from 800 to 850, has actually grown, the report said. In all, 18.6 percent of borrowers fall into this category, up 0.7 percentage points from the levels seen in 2010. That's an increase of about 1.4 million people.

What the numbers could mean
Experts say that there simply isn't enough data to explain exactly why the middle range of credit scores has remained relatively unchanged, making only incremental improvements even as more consumers at the bottom of the totem pole take appreciable leaps, the report said. However, they suggest it could be the result of both just how bad the recession was for millions of Americans and that the current economic recovery isn't going quickly enough to bring scores up more considerably.

Meanwhile, because the number of people with top-notch credit ratings has risen considerably in the past few years, that may likewise be an indicator that many Americans who could afford to do so simply became better borrowers, the report said. When the recession hit, many who already practiced strong borrowing habits likely made efforts to scale back new purchases made with credit cards or other types of financing, and took greater precautions to slash their outstanding debt.

However, that tightening of belts among those with top-notch credit ratings may be both a gift and a curse for the lending industry, the report said. This is because, while lending risk has declined considerably during the last few years, there may simply be a smaller number of prime and super-prime consumers who are actually willing to take on new lines of credit even as the economy improves marginally. More problematic, though, may be that many of these people will choose to remain outside the borrowing system until there are more considerable economic improvements nationwide.

Of course, there are many things that can have a negative effect on your credit score, and one of them is unfair markings that may be marring your credit report. To determine whether this is a problem for you, it may be as simple as ordering a copy of the document and checking it over closely for these problematic entries.