Does Credit Report Study by FICO Consider the High Cost Regions?
The father company that created credit scores, FICO released new results of a credit line study measuring the breadth of credit card limit reductions as well as the subsequent impact to consumer’s FICO credit scores. The study is the first of its kind since credit card issuers began to heavily ramp up their credit limit reduction activity in early 2008. Let’s consider some note-worthy points of the credit report study by FICO: 16% of the U.S population had their overall available revolving credit reduced between April and October of 2008. With credit bureau databases holding 200+ million consumer credit files, this would seem to indicate that at least 32 million cardholders lost some of their credit limits during the study timeframe of April 2008 through October 2008.
Bad credit mortgage options remained non-existent for struggling homeowners seeking home refinancing with fixed rates and lower loan payments. Millions of homeowners have been turned down by mortgage lenders across the country, because of low credit scores, delinquent mortgages, negative equity or employment instability. Some homeowners may qualify for loan modification plans if they happen to have their mortgage collateralized by Fannie Mae and Freddie Mac. However, only conforming home mortgages qualify for the federal mortgage modification program. Jumbo home loans do not qualify for a federal or FHA mortgage that ensures foreclosure prevention through a loan workout or mortgage refinance loan.
According to FICO, “Credit utilization rate has proven to be extremely predictive of future repayment risk, so it is often an important factor in a consumer’s credit score. Credit holding companies started taking a pro-active approach to borrowers who access a significant proportion of their credit available because they are much more likely to default on their credit card terms with debt settlement, credit counseling or bankruptcy. However people maintaining lower credit utilization levels whose credit cards and home equity lines of credit are not maxed out are much more likely to continue making their credit debt payments as agreed.
5 % of the population, or 10 million consumers, saw their limits reduced because of some sort of risky credit activity including late payments, accounts in collections, or a negative public record added on their credit reports. The credit score decrease is likely due in part to an increased credit utilization percentage, while the score increase is likely due to the reduction of credit card balances. News reports also indicated that the home loan defaults and credit card debt negotiations have caused the credit repair industry to explode.
Read the complete credit report article > Thousands of Credit Card Consumers Report Credit Line Reductions in 2008.
