A credit card being cut.
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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.