Jan 23, 2020

FICO score changes could hurt Americans already facing debt issues

Illustration: Aïda Amer/Axios

The creator of FICO credit scores is enacting changes in how it rates consumers' debt levels and their speed of repayment, the Wall Street Journal reports.

Why it matters: The decision, which impacts the most widely used credit score in the U.S., could lower the scores of those who fall behind on loan payments, sign up for personal loans or have rising debt levels, likely making it harder for many Americans to get approvals for loans.

  • Consumers with high scores already will likely receive higher scores than under previous FICO versions. Meanwhile, people with low scores who continue to miss payments or accumulate debt will experience larger score declines.
  • Fair Issac Corp., the creator of FICO scores, said the alterations will produce a larger gap between consumers with good and bad credit risks.

The big picture: Up until now, FICO and other credit-reporting companies embraced changes that helped increase scores, such as removing certain information from credit reports.

Go deeper:

Go deeper

U.S. household debt tops $14 trillion for first time

Illustration: Sara Grillo

Household debt increased by more than $600 billion last year, topping $14 trillion for the first time and marking the largest one-year jump since 2007, new data from the New York Fed show.

Why now? The growth was driven mainly by a large increase in mortgage debt balances, which rose by $433 billion.

Companies are behaving like it's a recession

Illustration: Aïda Amer/Axios

Despite historically low interest rates, U.S. companies are being unusually frugal, holding back on issuing new debt and pumping up their balance sheets with cash.

Why it matters: Historically, when interest rates are low and the economy is strong, companies have levered up to increase capital expenditures and buy assets in order to expand. The opposite is happening now.

S&P finds record low credit-ratings downgrades

Illustration: Sarah Grillo/Axios

The number of companies around the world that had their credit ratings downgraded from investment grade to speculative grade — so-called fallen angels — hit the lowest level in 23 years, S&P Global reported Thursday.

Context: There were only 19 fallen angels last year, which marked the fourth consecutive year the number has declined, the longest stretch on record.

Go deeperArrowJan 24, 2020