What did the financial crisis, the burst of the real estate bubble, and soaring unemployment do to American credit scores?
As it turns out, not much. While individual credit scores may have seen significant changes, the median credit score has not significantly shifted.
The median Equifax credit score in 2012 hovers around 697, largely in line with the median credit score in late 2007. Over the past five years, the median score has shifted up by only six points in a range from 280 to 850. That’s not even a 1 percent change, despite the economic turmoil that hit Americans through the recession.
How did credit scores remain so steady?
Credit stores have remained steady as a matter of balance. The highest-risk population—people carrying credit scores ranging from the bottom to 579—did increase over the course of the recession. This is the portion of the population that could not or did not make payments because of unemployment or debt stress like foreclosures.
The highest-risk population grew from 17.5 percent of the total number of borrowers to a 19 percent high in 2010. But these numbers have dropped since 2010 to 16 percent, representing an overall drop in the high-risk population over the past five years.
Meanwhile, the number of lower-risk consumers—those with credit scores ranging from 740 to 850—remained relatively steady, increasing by between 0.5 percent and 1 percent over the last five years. But lower-risk consumers make up a bigger piece of the pie—about 43 percent of the total number of people Equifax serves.
This larger population outweighed the lower-risk population, thus causing the six-point score increase to the median credit score.
Overall consumer confidence in the economy has been shaky at best over the past five years. The idea, then, is that many people have been spending less, paying off debt regularly, and taking out less credit. Lenders are also issuing less credit, and potential borrowers have to meet tougher lending standards.
The numbers support this idea. Credit originations have contracted—both consumers and lenders have taken out less credit in the past five years, and overall debt has decreased by nearly 12 percent, or $1.5 trillion, since October 2008.
There is one sector of the economy where lending has actually increased: the auto industry. Auto loans have increased 5.4 percent since 2010.
The data released this summer indicates some hopeful signs—higher median credit scores and a recent decrease in high-risk credit scores—but there’s still a long way to go before we fully recover.
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