MINNEAPOLIS—September 19, 2011—A comparison of FICO® Scores nationwide 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.
Since 2008, FICO has observed a sizeable decrease in the number of consumers nationwide who scored in the riskiest (300-499) and the least risky (800-850) segments of the FICO® Score’s 300-850 range. At the same time, an estimated 2.8 million more consumers have scored in the 550-649 range.
“As the economy stabilized, FICO Scores nationally returned to a more normal or steady-state distribution pattern,” said Rachel Bell, a director of FICO Labs. “The larger number of people with 550-649 scores may reflect the impact to credit risk caused by the appearance of serious delinquencies on consumer credit reports. That particular shift could persist for several years. As we reported in March 2011, score recovery from negative events such as mortgage foreclosure typically takes from three to seven years for consumers who meet their credit obligations following those events.”
In the earlier period between 2005 and 2008, FICO observed the opposite trend. The number of consumers with very high or very low FICO® Scores increased, and the number of consumers at the middle range of 600-749 dropped. That movement has been described as a flattening of the distribution curve for FICO® Scores.
“In our experience, movement toward both tails of the distribution curve is typical during economic downturns,” said Bell. “At the top end of the score range, the upward shift likely was due to efforts by mainstream consumers 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.
“At the lower end of the score range,” Bell added, “highly leveraged consumers can experience quick credit problems when the economy tightens, leading to serious delinquencies and bankruptcies that push their FICO Scores lower.”
Bell observed that overall, FICO® Score distribution nationally has been more stable in recent years than many observers might have expected. That relative stability points to the continued ability of most consumers to manage their credit consistently and without serious mishap.
FICO estimates that 200 million U.S. consumers have sufficient credit history on file at national credit reporting agencies to calculate a FICO® Score. The company’s analysis of the FICO® Score distribution was based on a nationwide sample of consumer credit data from Equifax, Inc. For more information about trends in FICO Score migration, contact Jeff Scott for FICO at 408-884-4017 or firstname.lastname@example.org.
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