April 1,2009
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FICO ‘Gouge'; Good Stuff, Pt.1
Who were these people?Shrouded in mystery (by design, perhaps), it's always been hard to get published inside info from those who make the real decisions concerning our credit card score. So, here is one of those rare opportunities. In fact, it's so rare that it's never been done before under these conditions. Much news and speculation rains down on us all concerning the perils of having our credit card lending limit reduced and the hit it will take on our FICO scores. Just in the seventh-month period studied (April to October, 2008), it has been extrapolated that 32 million credit card holders had their borrowing limits reduced. Since that time, as most of us know, the trend has accelerated dramatically. Current forecasts indicate a most bleak outlook for the future. Perhaps the greatest value of this intensive study involving over 200 million credit card accounts, is the effect on a person's FICO Score. This is best answered by the experts at the Fair Isaac's Corp.
Here is a national results rundown on who these people were during this seven month period:
- Overall population with lowered credit (16%): Projected to comprise about 32 million credit card accounts.
- Non-risk population with lowered credit (11%): Projected to comprise about 22 million credit card accounts. These are accounts deemed to have experienced limit reductions for reasons other than risky activity on the card holders' parts. The average (as opposed to the ‘mean') FICO Score of this group was 770. Since this is an excellent rating, the reason for these cuts must have been other than reckless borrowers. The suggested reason for these reductions is ‘utilization' or the lack thereof. Consumers either not using the cards at all or, else carrying very low balances. The seemed justification was that these people simply didn't need high amounts of available credit if they were never using it.
- Risky population with lowered credit (5%): Projected to comprise about 10 million credit card accounts. These are the people with the lower FICO Scores. These are the people we would expect to represent 100% of the lowered credit availability. Why so small of a figure? Fair Isaac's didn't elaborate much on the reasons. The trend doesn't seem to add up. At least not with simple logic.