Rising Stars v. Fallen Angels: Insights into changing credit behavior

FICO® Score migration patterns offer significant insight into consumer credit behavior. There's much to be learned by exploring these patterns—particularly whose score went up, whose went down and whose stayed the same—during dynamic economic times.

We've just published new research analyzing score movement during recent economic volatility, from October 2006 to April 2011, in a national random sample of 10 million US consumers with credit bureau files (all trade lines). We identified four behavioral segments of interest, which together accounted for just over 51% of the sample population. Numbers of consumers in each segment are based on an extrapolated population of 200 million.

 
Here are key findings for each segment.

• Fallen Angels (consumers whose scores fell more than 150 points): The size of this segment is smaller than public perception fed by massive press coverage of delinquencies and defaults. What's interesting is that for almost 72%, mortgage issues did not cause their problems; 40% had no mortgages, and of those that did, 53% had clean mortgage payment records. In addition, 34% with defaulted mortgages look to be strategic defaulters, since they continued to pay other credit obligations.
• Rising Stars (those whose scores rose more than 100 points): The size of this segment—only slightly smaller than the Fallen Angel segment—shows that there's a healthy segment of people who have taken steps to significantly improve their credit worthiness. Many have improved their credit scores while taking on significant new debt obligations. Only 45% have mortgages.
• Prime Holders (those whose scores remained in low-risk ranges): Fully a third of the credit population has managed to maintain a stable level of high credit worthiness during a severe economic downturn.
• Moderate & Subprime Holders (those whose scores remained in medium- and high-risk ranges): A significant segment of consumers continue to struggle with credit management. An alarmingly large number, 39%, have mortgages, and 63.8% of them have not yet defaulted on those mortgages though they have problems on other trade lines. Only 6% with defaulted mortgages appear to be strategic defaulters.