Changes in FICO Score Distributions Over the Past 5 Years

In September 2011, FICO released a comparison of nationwide FICO scores from the years 2005 to 2011.  FICO’s scores, the credit industry standard, range from 300 to 850, with a high score representing low risk.  According to FICO, the score distribution remained basically stable nationwide because most consumers manage their credit well.  FICO estimated that 200 million U.S. consumers have enough credit information on their credit reports to calculate a FICO score.

Prior to recession

Comparing the score distributions from 2005 and 2008, there was an increase in the lowest or most risky score ranges (300 to 499) and the highest score ranges or least risky (800 to 850).  This occurs when the economy declines, which coincides with 2008 as the beginning of the recession. Most of the other score ranges decreased, and the largest decrease was the 650 to 699 score range decreasing by -.8 percent or approximately 1.6 million consumers.“In our experience, movement toward both tails of the distribution curve is typical during economic downturns,” said Rachel Bell, a director of FICO Labs. “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, highly leveraged consumers can experience quick credit problems when the economy tightens, leading to serious delinquencies and bankruptcies that push their FICO Scores lower.”

Recession to 2011

From 2008 to 2011, the distribution in the highest and lowest score ranges decreased.  The score range of 550 to 599 had the highest increase of 1.2 percent or approximately 2.4 million consumers.  This range is a high risk range, which indicates that more consumers had financial problems during this time frame.

During the six years, the proportion below 650 increased from 33.8 percent in 2005 to 34.7 percent in 2011, which is approximately 69.4 million consumers. Once your score is below 650, it takes years to recover, because negative information such as foreclosure and bankruptcy remain on your credit report for seven years. The remaining 65.3 percent or 130.6 million consumers had scores above 650 and would be able to get credit.

Score distributions may be somewhat stable nationwide, but for individuals they can fluctuate drastically because of negative information.  To improve your score, the best practice is to pay your bills on time and pay down balances.

Credit Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Credit Cards, Credit Report, Credit Score, Getting Credit, Improving Credit, Money & Identity, Saving Money

This post was written by John Ulzheimer