Over the last few years, millions of Americans have seen their finances improve in some way since they took a hit during and immediately following the recent recession. In some cases, however, their credit scores may not reflect that improvement.
There has been relatively little growth in the middle credit score ranges since the early stages of the recession in 2008 and 2009, even as many consumers have made greater efforts to get their credit use under control in the intervening time, according to a report from the credit scoring bureau FICO. Meanwhile, more consumers moved into the extreme ranges — the lowest and highest — on the scale.
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For instance, in 2005, about 14.6 percent of consumers with a credit rating had scores between 300 and 549, but that number grew to 16 percent in 2009, and has since fallen to 14.2 percent today, the report said. In all, that means about 800,000 fewer people fall into this range today than seven years ago. At the same time, the number of people who have scores from 800 to 850 has risen by 1.4 million people in the last two years alone, to 18.6 percent from 17.9 percent.
But the reason for those movements, and for the slow improvements in the middle ranges as a result, is perhaps that the current economic conditions nationwide have not improved enough, the report said. While more data is needed, it seems that many Americans are still approaching credit too cautiously, or have simply been prevented from borrowing. For instance, a larger portion of those 800,000 who no longer fall into the lowest credit score range may have dropped out of the credit system, while the 1.4 million who moved into the top range likely did so to shield themselves from economic problems related to increased borrowing. In either case, it may be some time before either group wants or is able to return to borrowing as they would have prior to the recession.
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However, there has been a positive effect in all of this as well. The credit risk observed by lenders nationwide has fallen considerably in the last few years, and new options are now being opened to prospective borrowers of all backgrounds.
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