Subprime Pool Expands as FICO Scores Drop
Fair Isaac Corp.’s latest figures indicate that more than 43.4 million Americans now have a FICO score of 599 or less. That's more than one-quarter of all U.S. consumers and an increase of 2.4 million since 2008.
MINNEAPOLIS — Fair Isaac Corp.’s latest figures indicate that more than 43.4 million Americans now have a FICO score of 599 or less. That's more than one-quarter of all U.S. consumers and an increase of 2.4 million since 2008.
The credit score provider based its findings on April’s consumer credit reports. Comparing average scores to those registered in April 2008 — before the late-2000s economic crisis started to drive down scores nationwide — shows an increase from 8.7 to 9.6 percent in the 550–599 range and an increase from 8.2 to 9.0 percent for scores of 500–549.
Scores of 300–499 dropped slightly from 7.2 to 6.9 percent, but so did the number of Americans with the highest scores. The number of consumers with scores of 600–850 decreased from 75.9 percent in April 2008 to 65.0 percent in April 2010. The most stable tiers were 600-649 and 750-799, each of which lost only 0.1 percent of consumers.
"While these are small movements, they are important, because even slight movements can impact loan portfolios," said Andy Jennings, FICO's chief research officer and head of FICO Labs, the company's research arm. "More interestingly, the performance of consumers at a given score has changed as the economy slumped."
Economic recovery will almost certainly be slowed as more consumers fall out of the lower-risk tiers that lenders prefer. Nevertheless, Jennings cautioned against relying completely on FICO scores to determine creditworthiness.
"It's critical that lenders have analytic tools in place to understand how a score of, say, 700 will perform," he said. "Will it perform as a 700 performed last year? Will it be riskier? Banks must be able to anticipate how macro-economic factors such as GDP, unemployment, and housing prices will affect consumer credit risk."
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