Through all the foreclosures, staggering stock market losses and dissolved personal fortunes, one measure of Americans' financial health has remained surprisingly steady during the recession: the consumer credit score, used by banks and lenders to determine how much credit to give borrowers, and at what rates.
But that's finally beginning to change, and the economic turmoil in households is not solely responsible.
Banks and lenders are shoring up risks — closing a record number of credit card accounts and reducing millions of dollars in credit lines. As they clamp down, even some consumers with excellent credit and spotless payment records are seeing their credit scores reduced because of the diminished credit lines. That, in turn, can hamper consumers' ability to get credit elsewhere.
Mary Lou Reid, 61, says two of her credit cards were closed recently because of inactivity, eliminating $47,000 of available credit. Her credit score dropped to 726 from 757. The most widely used credit scores run from 300 (very poor) to 850 (pristine).
"They didn't give me any warning," says Reid, of Arcadia, Calif. "One needs to feel in control of one's life, and what they've done here is cut me out of the equation."
As lenders' appetite for risk wanes, they're pulling back on an unprecedented amount of credit — up to $2 trillion on cards alone by 2010, estimates analyst Meredith Whitney.
"It becomes this self-fulfilling problem," says Mark Zandi, chief economist at Moody's Economy.com. "Lenders cut credit lines, and if consumers simply do what they had been doing, their credit score could fall. Other lenders respond by cutting their own lines or raising rates."
The cycle concerns consumer advocates and some legislators. Some wonder whether restrictions should be imposed on lenders' ability to slash credit limits and close accounts. And if scores can drop even if consumers do nothing wrong, they say, it raises the question of whether there's a flaw in the credit scoring formulas relied upon by the nation's lenders, insurers, and increasingly employers and landlords.
http://www.usatoday.com/money/perfi/credit/2009-03-05-economy-credit-scores_N.htmThe CC industry is just crusin for a brusin.......