New figures show that 25.5 percent of consumers — nearly 43.4 million people — have a credit score of 599 or below, marking them as high risks for lenders.
According to John Ulzheimer, the President of Credit Education at Credit.com, even in the loose credit years of the previous decade — when almost anyone was extended credit — a 600 credit score was still considered sub-prime.
The key dividing line between prime and sub-prime is a score of 650. When the number of people whose credit score is below 650 are added up, they total 70 million people, or 35 percent of consumers. These are the people considered to be at an elevated credit risk.
Normally, just 15 percent, or 25 million people, fall into this high risk / sub-prime, category. But credit scores have worsened considerably for a much larger percentage of the population. Ulzheimer says this is the biggest shift in FICO score distribution he's ever seen since the score became widely available in 1989.
This bottom 35 percent of consumers are either denied credit outright, or they are charged exorbitant interest rates. This applies even to credit cards.
The FICO score ranges from 300 to 850, though the highest score is exceptionally rare. Scores in excess of 750 are also rare, and individuals with these scores can pretty easily attain credit and are often courted, if not aggressively pursued.
These worsening credit scores mean that more than a third of Americans won't qualify to buy a house or a car. That lessened demand will have far-reaching effects across the economy, limiting GDP growth.
It will also affect those 70 million people in the most direct sort of way.
Most Americans have gotten used to mitigating the effects of low or stagnant wages though the use of credit. And the unemployed may be entirely dependent on it.
For many of them, those days are now over.
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