April 9,2009

• Credit Score Drift, Pt.3
    What waters have we drifted into?

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  How does or can FICO effect me?:
  Again, we find ourselves in the middle of Steve Martin's ‘zwing'. The new credit card standards transition coupled with a rapid and meandering drift. So let's start with the last trusted credit card industry coordinates: Last year, if you bought a new car for $25,000 on credit, with a 720 FICO Score you could expect to pay about $772 per month on that auto loan. Supposing, instead, that your FICO Score was only 619: That same car could cost you $877 a month, instead. That's an over $100 per month difference and, on a five-year payment plan, that could equate to an additional $6,000 cost on that car purchase. Again, these figures are over four months old (whew). The credit card was only beginning to crumble and this is what it would have looked like at close of last year:

  FICO Score..APR ......Monthly payment
  720-850 ....7.000%....$772
  690-719 ....8.973%....$795
  660-689 ....10.000% ..$807
  620-659 ....12.521% ..$837
  590-619 ....15.849% ..$877
  500-589 ....17.917% ..$903

  How extreme is the drift?:
  Last year, if you had a FICO Score from 700 to 720 you were still in pretty good shape. You could typically find good rates and terms. But now, the ‘good' range seems to have moved up to a FICO Score between 740 and 770. Above that, you can still get the best rates and terms. Today, if you're in the 600s and below, you'll have more trouble getting credit at all. Whatever you can get will not have favorable rates nor terms. With tightening standards and a very hard-pressed economy, credit card availability is rapidly diminishing.

  Forecasts for the near future are for a society of the "haves" and "have-nots for the credit card community. Things may change when ‘FICO 08' becomes more fully-implemented but, for now, indications are that the old rules are still being applied by most of our major lending institutions. So, the next series' guidelines will be geared toward the ‘now-reality' which uses the old rules but, with an optimistic eye toward better times in hopes that ‘FICO 08' will be implemented soon. For those interested in these guidelines, please refer to the series entitled: " Credit Score Navigation "

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