Credit plays a central role in the U.S. economy. Credit scores are within the same boat as the economic recovery seems to be. Individuals have not been paying much of their debt recently. Numerous of these are because of a job loss. Others, like strategic mortgage defaulters, walked away rather than losing more money although they could pay. Living with a bad credit score is the result of this still. After the immediate relief of defaulting on debt, a long-term financial obstacle course lies ahead for them. And U.S. economic recovery may have to limp along without their help.
More individuals have low credit scores
It appears like there is no way to get mortgages, car loans, or credit cards for everyone in America. Usually, there is only 15 percent of people that fall under 600 with their FICO scores, reports the Christian Science Monitor. Now there are 25.5 percent of individuals with FICO scores below 600, according to a recent FICO report. There is a quite good chance depending on an additional dip in housing prices and continuing foreclosures along with unemployment that there can be more people going below 600 before there is any improvement.
Can’t do anything with low credit
Since a quarter of America has a terrible credit score, only a quarter of all individuals could be able to take out loans. Loans can be received through Federal Housing Administration programs if your score is at least a 580. But none will qualify for loans guaranteed by Fannie Mae or Freddie Mac, which account for the lion’s share of the market and typically require credit scores of at least 650. Auto loan financing and credit cards are out of the picture as well.
Hiring those with good credit
For people who reneged on their debts because they lost their jobs, finding a new job could be tougher with a low credit score. CNN shows us that there have been a lot more hiring managers checking credit before hiring a new employee. Missed payments on a mortgage, car loan or credit card could keep them from getting hired. The Society for Human Resource Management did a survey showing that when companies are filling a position, 60 percent do credit checks. The number jumped there from 1996 when it was 13 percent to 2003 when it was 35 percent to where it is now.
Years spent fixing credit
Defaulting on debt has been common in this recession because of the relief it gives. Although you may have cash until payday loan, there are other consequences you should look at. Usually three to seven years are taken to build a credit score back up. Bad credit brought on by the recession will make it more difficult for numerous Americans to work their way out of it.
Further reading
Christian Science Monitors
csmonitor.com/Money/new-economy/2010/0727/Credit-scores-slide-downward
Wall Street Journal
blogs.wsj.com/economics/2010/07/31/number-of-the-week-default-repercussions/
CNN Money
money.cnn.com/2010/07/22/news/economy/credit_checks_for_job_applicants/
