A comparison of nationwide FICO® Scores from 2005-2011 illustrates that score distribution has remained relatively stable at a national level. However a close look at the numbers suggests that U.S. lenders have experienced two distinct phases of consumer credit risk in the recession thus far.
Early in the recession, lenders saw a sizeable increase in the number of consumers who scored in the lowest (300-499) and the highest (800-850) segments of the FICO® Score range, and a corresponding drop in the volume of consumers at the middle range of 600-749.
In our experience, this movement toward the tails of the FICO® Score distribution curve is typical during economic downturns. The downward shift likely is a result of quick credit problems experienced by consumers who are highly leveraged, leading to serious delinquencies and bankruptcies that push their risk scores toward the low end of the score range.
At the same time, mainstream consumers may instinctively move to protect their finances by paying down revolving debt, postponing new purchases that would require financing, and similar actions. Such behavior tends to improve consumers’ credit risk and push their FICO® Scores higher.
This trend reversed course after 2008. Consumer scores have moved away from the tails of the distribution curve, and 2.8 million* more consumers have scored in the 550-649 range. This shift may reflect the enduring impact to credit risk caused by the appearance of serious delinquencies on consumer credit reports. As we reported in March, score recovery from negative events such as mortgage foreclosure typically takes from three to seven years for consumers who meet their credit obligations following such events.
Top lenders actively monitor and track FICO® Score distributions for valuable insight into emerging trends—trends that may indicate future risks and opportunities—and adjust their strategies to capitalize on them. FICO’s analysis of the FICO® Score distribution was based on a nationwide sample of consumer credit data from Equifax, Inc.
*2.8 million represents 1.4 percent of consumers nationally. FICO estimates that 200 million U.S. consumers have sufficient credit history on file at national credit reporting agencies to calculate a FICO® Score.