Jul 27, 2010 -- More Americans now ranked as a poor credit risk
The credit score of many Americans has suffered mightily of late, according to a new report from FICO.
The FICO organization now says that more than one in four of us have credit scores that are 599 or lower. That means a virtual doubling of the number of people who are poor credit risks. The rash of recent foreclousures and bankruptcies are most certainly to blame, along with extended joblessness.
As an aside, Clark recently read that Vantage -- the main competitor to FICO that's owned by the three main credit bureaus -- reports the effect of a bankruptcy on your credit score is much larger than foreclosure or short sale.
Under the Vantage scoring model, a short sale will lower your credit score by 120-130 points. A foreclosure will drop your score by 140-150 points. A bankruptcy, however, can decimate your credit score by a whopping 365 points! So it's to your advantage to avoid bankruptcy if at all possible.
The reality is that Americans have been hit with the double whammy of very high unemployment and unprecedented levels of debt going into the Great Recession. So we undoubtedly have a recent past that will take a while to overcome. If your credit is devastated, it will be an ongoing healing process.
Here's the confusing thing, though: If you've been burned by debt, are you better off living a cash-only lifestyle going forward? Clark's historical answer has been pretty wishy-washy, by his own admission.
If you learned your lesson and can responsibly handle credit, that's great. Because you can rebuild a positive credit history, you'll benefit by getting lower insurance rates and having access to credit when you travel. But if you can't handle credit responsibly, then you must go cash only.
