Credit Score Issues In The News

Credit scores are an important personal finance matter, affecting finances directly, such as in the availability and cost of credit, and indirectly, as when used by potential employers as an evaluation tool or by insurance companies in setting rates.

There's a lot going on in the world of credit, as is to be expected with the overall economic circumstances we face today, with credit score issues garnering headlines throughout the nation. Lower credit scores have been making news because they are not, of late, always due to some financial misstep or fiscal mishap on the part of the individual. It is becoming increasingly common for people who pay their bills on time and have a good credit history to be surprised to find that their credit score has dropped, due to the actions of lenders. Perhaps that is a contributing factor to lawmakers starting to give serious consideration to the appropriateness of the multitude of ways credit scores are used, well beyond determining creditworthiness and lending risk potentials, something that could eventually lead to changes in law. According to a recent USA Today article, “from the third quarter of 2008 to the first quarter of 2009 — the latest data available — the average TransUnion credit score dropped 6 points to 651,” with the states hit hardest by the bursting of the housing bubble seeing steeper declines in credit score averages. Arizona and California saw the most significant drop. A May 28, 2009, article in the OC Register notes the influence of the foreclosure crisis and the housing market on credit scores, quoting co-CEO of Bills.com Andrew Housser as saying that “a foreclosure will cause a credit score to drop sharply, typically by 200 to 300 points.” According to a Liz Pulliam Weston, Money Talk column published in the LA Times on May 10, 2009, a sort sale can have a similar affect. The foreclosure crisis and the struggling housing market are not the only contributing factors to low credit scores. Rising unemployment is taking its toll, with a May 31, 2009, Bloomberg.com article reporting “unemployment in the U.S. probably surpassed 9 percent in May for the first time in more than 25 years.” And, that is a national figure. There are regions throughout the nation that have seem local unemployment rates pass that number months ago. More lay-offs are expected as businesses and individuals get trapped in the cycle – lay-offs, less consumer spending by those out of work or in fear of job loss, less retail business, reduced retail revenues and profits, more lay-offs, closures, and job losses, and the cycle continues. Lower credit scores as people struggle to pay bills is certainly no surprise. What has been surprising to some, however, is to see the lowering of their credit score through no real fault on their part, people who have been making their payments on time for years even. For months, there have been news reports of credit limits being reduced and credit card interest rates being raised not just for people facing fiscal difficulties and falling behind, but also for those that have been on time with payments for years and regularly making more than the minimum payments. When questioned by irate consumers and other interested parties, a common theme to the response lenders offer is the need to protect themselves from loss or to make up for losses already incurred by the lender in the market. Unfortunately, these behaviors on the part of lenders can have a negative impact on the credit scores of their consumers, which can fall significantly over such things as suddenly having less credit available. This can be a big deal in our credit dependent society, one that is becoming increasingly credit score dependent. The credit score is used for much more than determining creditworthiness, which is its obvious and original use, with uses ranging from the setting of insurance rates to the evaluation of potential employees and tenants. The ways that credit score can affect the day-to-day life of consumers beyond the ability to borrow and the cost of a personal loan or other types of borrowing have broadened to such a degree that lawmakers are beginning to give the matter some consideration, according to recent news reports. On May 10, 2009, for example, the Associated Press reported “the Michigan Supreme Court will consider whether insurance companies can use customers' credit scores to set home and auto insurance premiums.” In this era of economic uncertainty and nervous lenders, it is a good idea for the consumer to pay a bit more attention to their credit score. Take active steps to protect your credit score, including taking special care to pay bills on time and paying down credit card debt, so that if your limit is lowered, you're not caught with too high of a balance, one that could damage your credit score. If you have cards that you don't use too often, use them to make a couple purchases every now and then, paying off the balance and adding positive information entries to your credit report. With a proactive and careful approach, maintaining and even improving credit score is possible, despite current economic circumstances.