Could this be a light at the end of the credit crisis tunnel? According to new research from Fair Isaac Corporation, the company responsible for FICO scores, the percentage of Americans with top-notch credit scores is the best it’s been since 2008. In addition, the number of people in the bottom tier of the credit spectrum has fallen to pre-recession levels.
But these improving signals are tempered by data that shows a growing number of people stuck in a kind of credit limbo with scores that aren’t horrible, but aren’t good enough to take advantage of low interest rates for things like mortgages and car loans.
FICO scores range from 300 to 850. In 2011, 18.3% of people had FICO scores between 800 and 850. Interestingly enough, this figure was at its lowest the first year FICO began tracking this data in 2005. That year, top-scorers comprised 16.9% of the population. By 2008, that had climbed nearly two percentage points to 18.7% before it began to fall.
It’s good news that more people today are exercising diligence about keeping their credit scores high by doing things like paying bills on time, not applying for new credit lines and keeping balances on existing cards well below their limits.
What keeps this good news from being great news is that lenders have much higher credit requirements than they did pre-recession, so what used to be a great credit score is now just barely decent. Increasingly, borrowers find they need scores in this range — 720 is the cutoff some lenders use — if they want to snag the best rate on a line of credit.
There’s evidence that despite the increase in 800+ scores, a lot of people have slipped below this threshold. Although a slim majority — 53% — of people have credit scores of 700 or better, the number of people with credit scores in the 700 to 749 range fell to 15.5%, the lowest percentage ever.