Report Finds Improvement in Credit Scores

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5/4/12 | Updated to correct a figure.

The number of consumers with top-tier credit ticked up to its highest level since 2008, according to a report from the creator of the FICO credit score.

An analysis by FICO, formerly known as Fair Isaac Corporation, found that 18.3 percent of consumers with FICO scores had scores of 800 to 850, the highest range of scores available. (In 2008, 18.7 percent of consumers fell in that range.)

FICO scores range from 300 to 850 and are used by most lenders to gauge a potential borrower’s creditworthiness. The higher your score, the more favorable the interest rate you’re likely to get on a loan.

FICO’s report is based on an analysis of a national sample of credit reports as of October 2011 provided by Equifax, one of the three major credit reporting agencies.

The report found, though, that just 15.5 percent of consumers had scores in the 700 to 749 range — the lowest that FICO has recorded since it began tracking such data in 2005.

Rachel Bell of FICO Labs, FICO’s research arm, said many consumers had stepped up their efforts to maintain an excellent credit profile, by paying bills on time and using credit wisely. That’s why they have moved into the top tier.  But the lingering financial stress of the recession and a tight job market have pulled others into lower tiers.

The report said the proportion of consumers with scores in the lowest tier — 300 to 549 — was 15 percent, the lowest since 2006.

One likely explanation, Ms. Bell said, is that lenders have written off bad debt and closed their riskiest credit accounts. Negative items carry less weight in a credit score as time passes, she said, so credit scores will move up for consumers who had multiple bad debts and delinquencies, but who are now staying current.

John Ulzheimer, who blogs about credit at SmartCredit.com, said what struck him was that more than half of consumers — 53.2 percent — still had credit scores over 700.  That’s down from 54 percent in 2006 and 2007, before the full impact of the credit crisis. But it suggests that the “gloom and doom perception about credit scores falling off the table” because of the economy “simply isn’t true,” he said in an e-mail.

In general, you must pay to obtain your FICO score (although you can get it without charge if you sign up for a free trial of other products on www.myfico.com).

But you can check your credit report — on which your FICO score is based — free on www.annualcreditreport.com.  Each of the three major credit bureaus (in addition to Equifax, they are TransUnion and Experian) must provide consumers one free copy of its report each year. So you can check a different report, free, every four months.

Have you checked your credit score lately? Has it gone up or down?

This post has been revised to reflect the following correction:

Correction: May 4, 2012

An earlier version of this post misstated the range of scores in which 15.5 percent of consumers fell. It was 700 to 749, not 700 to 799.

View the original article here