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One in Four Consumers Now Considered Subprime

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Bad credit? No credit? No problem. Ah, those were the days, right? Remember when anyone with a recent pay stub could qualify for thousands of dollars in available credit? And man, we sure used it, didn't we? Well, not anymore.

FICO (FIC), the publicly traded credit scoring company, says more than 25 percent of consumers now have a credit rating of 599 or less, considered the threshold at or below which you become a subprime borrower. The data from FICO is replete with what economists refer to as, "double-edged swords," a macroeconomics phrase meaning, "data are both good and bad at the same time and so we have no idea how to really analyze it." Impervious to such restrictions, I will:
  • In hard hit states, such as Florida, as much as 40% of consumers are considered subprime, which will keep consumption below levels considered "normal" for years to come.
  • The percentage of consumers nationally with sterling credit, above 800, is approaching 18%, well above the historical average of 13%, but this is simply a function of increased savings and debt reduction, not organic growth.
  • The "normal range" of consumers with scores between 650 and 699 lost more than 5 million people since 2008.
Of course, the incredible part about the FICO scoring system really has nothing to do with this data at all. Instead, it's the fact that your FICO score is tied to your existence as a consumer in the same way your social security number is tied to your existence as a citizen of the United States. The key difference is that you know your social security number for free, but to discover your FICO score you'll need to fork over $15.95 to FICO. I love that. The publicly-traded company that profits by scoring your credit history and charging banks and other lenders for the analytics and modeling also charges you to find out what in the hell they are doing. Hahaha. It's a perfect circle.
POSITION:  No positions in stocks mentioned.