Based on a fresh look at the national distribution of FICO® 8 Scores, it appears that the profile of credit risk for U.S. consumers, while still mixed, may be slowly returning to a prerecession pattern.
As my colleague Andrew Jennings has noted, people with higher FICO® Scores have generally increased their revolving credit usage since 2010. This trend is echoed in score distributions nationally during 2012 as the number of people with scores between 750 and 850 dropped slightly—from 37.4% in 2010 to 37.2% in 2012. Higher balances and higher credit utilization could help explain this modest downward shift in scores.
At the lowest end of the score range, the number of people with FICO® Scores below 500 remained very low in 2012 by historical standards. During 2012, there was a modest increase of roughly 600,000 people at that score range between April (the data sample used in our last score distribution post) and the October data shown above. This may be partly explained by an increase last year in mortgage foreclosure rates.
In general, the number of consumers scoring in the very lowest score ranges is trending downward. Keep in mind, however, that the number of consumers with FICO® Scores below 600 was still greater in 2012 (24.4%) than 2005 (23.6%). This is undoubtedly a reflection of the lingering hardships caused by the Great Recession.
Another useful way to understand score dynamics is by looking at score movement over time. The table below shows how the scores of different pockets of consumers migrated between October 2011 and October 2012. Take, for example, consumers with FICO® Scores of 750-799 in October 2011. By 2012, 21.0% of them had moved into the 800-850 score range, 58.3% stayed in the same range, and 20.7% moved to lower score ranges.
This table demonstrates that although the score distribution shifts are not dramatic, there will invariably be pockets of the population that shift to higher and lower score ranges. Even over a short 12-month window, consumers with lower FICO® Scores can move to higher score ranges. For instance, 30.9% of consumers who fell into the 550-599 score range in October 2011 scored 600 or above one year later, and only 25.2% of this group scored lower in 2012. This demonstrates that consumers can improve their credit scores over time, which is why we encourage lenders to engage in consumer credit education.
If you're interested in learning more about the latest credit risk trends, I invite you to join us at FICO World 2013 later this month, and come to my session on “Consumer Credit Health and FICO® Score Dynamics.” I hope to see you there.
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Editorial note: check out our more recent blog entry on the national distribution of FICO® Scores and US consumer credit quality: US Credit Quality Rising … The Beat Goes On.