September 1, 2009
-
New FICO Study Gives Damage Report, Pt.2
Setting on the edge.We can see the logic here and why the credit card issuing banks have to be discriminating about whom they loan money out to any more. Defaults and charge-offs (permanent write-offs) have become rampant and many of the largest credit card lending banks are years away from even turning a profit again. There's a serious struggle going on, here. The unfortunate consequence is the unintended result of those credit card consumers who are "caught up in the machinery" and crushed.
As we live in a nation where credit cards have become essential to everyday life, the loss of those privileges to a struggling family can be devastating. Any more, the ability to secure credit card loans with favorable conditions depends very heavily on having a FICO score above 700. The range runs from 300 to 850. Our nation's mean right now is just above 700. This means that the center-point of all our nation's score is just above the minimum of what the credit lenders will accept for a new credit card account with acceptable terms.
If you are that "average person" who owes $5,000 on a $20,000-limit credit card, you may be doing fine. You're only using 25% of your allowable credit limit and that's good. If, however, your credit card lender should cut your credit limit down to only $6,000, you may find yourself in trouble. Now you're, effectively, using 83% of your available credit. To the banks, you are now "20 to 50 times more likely to become delinquent " then those who only carry a 10% debt-load (0% to 30% is considered healthy). So, the ones hanging out there are those carrying a high balance that they can't readily pay substantially down. If they get hit, they're in a pickle.
So, how many have been hit by this already? Millions, even tens of millions, according to the Fair Isaac's report.