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American credit scores plummet

A credit card being cut.

TEXT OF STORY

Tess Vigeland: The path to economic recovery could be paved with numbers. Specifically, credit scores. Folks with good scores can buy houses, get loans for new cars, get approved for credit cards. And all of that fuels consumer and small business spending. The bad news for all of us, then is that the number of Americans with dismal FICO scores is going up. Used to be that about 15 percent of us had a score of less than 600. But today, according to the Associated Press, it's more like 25 percent. Jeff Horwich reports.


Jeff Horwich: The recession has lowered millions more Americans into the realm of credit "untouchables." Take 27-year-old Steve Miles, an engineering student and Iraq war vet in Oregon who's become unfortunately intimate with his FICO score.

Steve Miles: Last time I checked it was about 493.

Steve says he returned from Iraq to find his wife, now ex-wife, had racked up huge credit card bills. Then in February, he lost his job with the city government. More bills went unpaid, dragging his credit score below 500. Forget trying to finance a house or car with a score like that.

Miles: No one will even look at me and consider me.

Steve's about to declare bankruptcy, which will drive his credit score even deeper, for years. A bad score can take seven years to fix, even once you've addressed every blemish. That's a long time for 43 million people to be shut out of large parts of the economy. That's how many American consumers now have FICO scores below 600.

Justin McHood: Right now, 620 is the magic number.

Phoenix mortgage banker Justin McHood says with a score of 620, you can at least get in the door for a mortgage backed by the Federal Housing Administration. For a conventional loan or refinancing, the number is closer to 700.

Mchood: People call in and say I need to do something to lower my payments. And we're just unable to provide a solution for them.

McHood and others say the depth of this recession has muddied the meaning of a low FICO score. The score is meant to size you up as a credit-risk. To be sure, there are many people whose overspending, poor planning and late bill payment have landed them under 600. A single delinquent bill can knock 100 points off your score. But waves of layoffs and the collapsed housing market have stung many who never exercised risky financial behavior. Stan Humphries is chief economist for the real estate site Zillow.com.

Stan Humphries: Not all those people necessarily are a bad credit risk. Some of them have not overextended themselves, but rather are in that situation because of larger economic issues having to do with the recession.

And if your number's bad, lenders and landlords, who often look at FICO scores before renting don't usually care why. Professional help is available, often for free. Gail Cunningham, with the National Foundation for Credit Counseling, says counseling can help people to space out their debt payments.

Cunningham: One-hundred percent of your debt will be repaid to your creditors, and it will be repaid within five years if you elect to go on a debt-management plan.

There are also credit repair companies who, for a good-sized fee, will take a more aggressive approach. But since the recession, credit repair scams have exploded a mortgage banker can refer you to one that's legit. And you can contact creditors on your own to try to settle your unpaid debts. But be prepared: The act of settling is itself an unsightly ding on, you guessed it, your credit score.

I'm Jeff Horwich for Marketplace Money.

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It's really not correct because a lot of information is submitted to credit bureaus without our knowledge and we only come to know about it when our credit application is refused. I have 715+ score from all bureau bt still unable to get any credit because of a deliquent account reported on my report and that is false. I have disputed it twice, first time it was not removed and I recently disputed it second time.

Credit report is extremely important but it's sad to know that the report is updated most of the time with information that is incorrect and without our knowledge and we have to pay to check our records and if we find any information incorrect we dispute it and leave it at the mercy of being proved with false information.

The current recession is because the banks have already given loans to people with what they considered with good credit and the same people are unable to repay it because og job loss or whatever.

My sole point is the decision based on a credit report cannot be taken because it doesn't tell you most of the things, if it did all the information on all 3 bureaus should have always matched.

Simply put, credit reporting is a business of person's personal information and banks also do business.

We keep talking about recession, profits/loss but when grass root is weak any structure will ultimately collapse, no matter how much more we keep strengthning the sides or inside of the structure.

Please tell audence bad credit scores companys will not hire. please get out word.

One of the large factors in FICO scoring is the percentage of one's (unaccessed) credit available. When Bank of America cut my credit line by 2/3 to the amount actually used (because of its financial situation), my score decreased by 250 points!

A few days after this action was taken but before the written notice was received, an automated monthly charge caused the *new* credit limit to be exceeded by a few dollars. Major fee time! Also, in turn, my other interest rates rose. Thus, I feel I have made a supplemental contribution of a few thousand dollars to the financial sector rescue that I feel is completely unfair and unjustified.

To the producers: Elizabeth Warren has studied the huge problems caused--to people, especially the middle class, and to our economy--of credit card companies, since deregulation in the 1970s, being allowed to charge any rate they please and any fees they please for any reason they please. Why don't you interview her and ask her why and how she thinks how so many Americans have landed in too much debt? She has a different explanation from the ones given here, and she offers different, better information to the people in trouble. She tells the truth. People who are in serious need of help need to hear that truth, not repetition of the same kind of advice and superficial commenting that landed them where they are in the first place.

And please note that Warren has strongly criticized the failure of the U.S. government to provide any meaningful assistance in mortgage catastrophe to those millions of Americans who are in deep trouble through no fault of their own. These are the real stories behind the matters brought up and so sketchily addressed here. What mortgage company does Justin Hood work for? Do they participate in HAMP, the government refinancing program to avert default? If so, why does he say his company has no help to offer them? If not, why not?

To the listeners: If you are one of those people or want to help someone who is, be sure to get hold of a copy of Warren's book "All Your Worth." It gives much better guidance on how to deal with the catastrophe than you will hear on any radio program--unless she's the one speaking. It's available on Amazon for pennies, and worth every one and more.

I have a question on this subject. I am divorced, and in the divorce my ex-husband agreed to pay a loan which I had co-signed, and then he defaulted on it. The defaulted loan went to collections and ruined my credit score (and this is my only historical debt). Last week I remarried. Will this bring my new husband's credit score down? If his credit is excellent and mine is otherwise excellent, will my credit score start to go up again?

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