Credit Scores – Poor credit scores are largely due to the sluggish housing recovery.
How big a whack did you take during the grim years of economic distress after the housing bust?
New research from a major credit-risk evaluation company suggests Americans’ ratings dropped in huge numbers.
FICO (formerly known as Fair Isaac Corp.), which developed and markets the eponymous score that dominates the home mortgage field, found that in 2008-09, about 50 million consumers in this country saw their FICO scores plunge more than 20 points. Nearly 21 million of these lost more than 50 points. Many lost 100 points or more because of severe delinquencies.
During the same period, lenders and investors began ratcheting up their standards for acceptable ratings and to extend special preferences in fees and interest rates to loan applicants who rank among the highest scorers. Among these developments:
— Loans originated for purchase or guarantee by the two dominant home loan investors — government-run Fannie Mae and Freddie Mac — now carry average FICO rating in the 760 range and above, record highs for both companies. That’s good for them, but not necessarily for you if you need a loan.
— Even new mortgages being insured by the Federal Housing Administration — traditionally the fail-safe financing refuge for first-time buyers with modest incomes and less-than-perfect histories — now have average credit rating of slightly above 700.
— During the housing boom years of 2004-06, by contrast, a score of 620-640 was adequate to earn you a good mortgage rate and terms at Fannie Mae and Freddie Mac. The FHA often approved loans in which the FICO scores were in the mid-500s.