Almost 26% of consumers have FICO scores below 600, an increase from the past two years and a reading that indicates it could be next to impossible for these borrowers to get a new mortgage.
According to new figures compiled by Fair Isaac & Co., from 2008 to 2010, the biggest deterioration in credit grades came in two categories: 550 to 599, and 500 to 549.
On the high end of the FICO range, nearly 19% of consumers had scores between 800 to 850 in April 2008. That figure dropped to less than 18% by April 2010.
On the lower end of the FICO score range (300 to 599, encompassing three categories) 25.5% of consumers were considered risky as of April, compared to readings of 25.2% in April 2009, and 24.1% in 2008.
"While these are small movements, they are important because even slight movements can impact loan portfolios," said Andy Jennings, FICO's chief research officer and head of FICO Labs, the company's research arm. "More interestingly, the performance of consumers at a given score has changed as the economy slumped. It's critical that lenders have analytic tools in place to understand how a score of, say, 700 will perform. Will it perform as a 700 performed last year? Will it be riskier? Banks must be able to anticipate how macro-economic factors such as GDP, unemployment, and housing prices will affect consumer credit risk."
