Credit Scores and the Recession

Credit scores are a hot topic these days. And, interestingly, as the recession changes the way we think about spending and saving and using debt to pay for things, credit scores are changing. Credit Karma offers this information on credit score trends:

Credit Karma saw an increase in credit scores across all geographies; however, the percent of credit scores rising has tapered off and the percentage of credit scores decreasing is rising. 41% of consumer credit scores have gone up, 29% have gone down, and 30% remained the same.

Rising credit scores are probably a result of more people paying down their debt. This can help a credit score increase. However, it is telling that the rate of increasing credit scores is slowing. It is quite likely that a couple factors will contribute to a shift toward decreasing credit scores as the recession continues:

1. Credit lines are being cut. Even if you do pay down your debt, many credit card issuers are cutting credit lines. This means that if you pay your $3,000 card down so that you owe $1,500, but the card company cuts your line to $2,000, your ratio of used debt still remains high, and your credit score suffers.
2. Those with troubled finances may turn to debt. Many people are in trouble financially — or getting close to having financial troubles. As hours are cut and layoffs continue, savings accounts and emergency funds are depleted. At some point, it is possible that turning to credit cards and other debt will become necessary.

It is comforting that some credit scores are increasing, and it points to a generally healthy trend (at least in terms of personal finances), showing that people are being careful about debt and how they spend their money.