Income for Life

25 percent of Americans are poor credit risks

According to an Associated Press article, more Americans have had their credit scores slip below the 600 mark and into the "poor risk" category.

The AP, citing data provided by Fair Isaac Corporation (FICO), reports that about 25.5 percent of consumbers -- more than 43 million people -- had credit scores of 599 or below at the end of April. That means they are unlikely to be approved for credit cards, car loans or mortgages under banks' tighter lending guidelines.

Historically, only about 15 percent of the 170 million people with active credit accounts have scores at 599 or below. So the 10-percent dip in that figure over the past two years is significant. What's troubling is that the figure impacts us all.

Consumer borrowing, though it ultimately played a major role in the financial crisis in the U.S., fuels the economy. The fact that one in every four Americans can't get a home or car loan -- or even that Target credit card -- HAS to be keeping the economic recovery in slow gear. People spend when they can borrow, and borrow when they can spend.

Interestingly enough, FICO also reports that people at the other end of the spectrum -- a score of 800 or better -- also number higher than the historcial norm. About 17.9 percent of consumers are among this group, up from the traditionally average of about 13 percent. This might be a result of those who are able paying down their debts while not borrowing more. This would help bump credit scores, but it doesn't necessarily help the economy.

The worst news might be that Amercians with moderate credit scores -- 650 to 699 -- are dropping in numbers, too. Those folks make up 11.9 percent of consumers, which is down from the norm of about 15 percent. This is the group that is probably most impacted by tighter lending standards, which in turn could affect the overall economy as much or more than the group at 599 or below.

The reason is because those with scores of 599 or below are less likely to attempt to borrow money than the group in the 650-699 range. It's the people in the latter category that probably spur the most consumer spending. If a guy with a 699 score today has a car loan that costs one or two more percentage points in interest, he is less likely to be able to afford the car.

Everybody is quick to hail the end of the "sub-prime" mortgage, but I can tell you for certain that there are people out there who have tried to buy homes and can't qualify now. And they are people who, a couple of years ago, would have qualified for a "prime" loan.

The stabilization of home prices and a drop in the unemployment numbers are often cited as keys to speeding up economic recovery, and we might not see a true recovery until we see dramatic improvement in those areas. But this new information on credit scores is something to consider, too.

In case you haven't noticed, Wall Street has been trending consumer confidence surveys recently. When consumer confidences jumps or drops, the market has responded. That's probably because investors understand that the duration of this recovery period is going to be affected by consumers' ability or willingness to spend.

What's ironic is that the easy-money lending practices that stuck so many banks with bad loans have gone so far the other way. Too much borrowing helped get us into this mess, and now too LITTLE borrowing is helping to keep us there.

The good news is that for those with strong credit scores, there is plenty of opportunity to borrow money at almost unbelievably low rates. Buying a home or a car, or putting that large remodeling job on a home equity line of credit -- typical things for which money is borrowed -- is possibly cheaper now than any other point in our lifetimes. And it's quite possibly cheaper than we will ever see again.

This is why it's important to keep that score up. It's much better to be part of the three out of four who CAN borrow than one of the four who now can't.

Source: This is getting ridiculous

You may or may not follow sports, but chances are you've heard at least a little bit about a guy named Lebron James in the past couple of weeks. Even for those of us who aren't sports fans, it's been unavoidable.

To catch you up, LeBron and a few other big names in the National Basketball Association are free agents. Meaning their contracts with their current teams are expired, and they are free to sign with other teams. But not any team, because the league has a salary cap, which means it can only spend so much on players' slaries. They're calling it "The Summer of Free Agency" because so many good players are available.

They should call it "The Summer of the Media Circus." In fact, the term "media circus" was probably coined just for this sort of occasion.

That's why we can't stop hearing about LeBron James -- or Chris Bosh, or Dwyane Wade -- even if we're not really paying attention. What we SHOULD be paying attention to is how the media are covering the story.

Basically, as of the end of the Fourth of July weekend, there is no story. LeBron has not decided where he's going to play. He might stay in Cleveland. He might go to Chicago, or New York or Miami. Nothing has been announced yet -- he's not speaking about his decision, yet the media are all over this.

They have his business manager's office staked out, and reported live from out front when various teams came to visit. They reported on what people wore. What cars they arrived in. Reporters also showed up at LeBron's Nike basketball camp, just watching him, reporting his every move.

How is it that an oil spill is spewing out 80,000 gallons of oil a day -- or something like that -- and we don't hear about it for weeks, but a basketball player has a lunch meeting and we find out what color shorts he had on. It tells you something about our priorities as a news audience. It also tells us about our news sources.

And this NBA free agent thing has been all about sources.

A "source" said it was a "done deal" that LeBron was going to play in Miami. Another "source" said it was Chicago. The media are quoting unnamed sources like it's going out of style. I've been able to find articles in which real estate agents were quoted as sources -- as in "where are these stars looking at houses?" I even saw an article in which a writer quoted a waiter in one of those cities. The waiter said a player told him during a dinner what team he was going to go to.

In other words, in this free agent frenzy, all the elements of responsible journalism have gone out the window. Nobody is checking facts, looking for confirmation from other sources. They're just running with any speculation they hear. They're blogging and tweeting and printing away -- whether their source be an NBA executive or a waiter.

It's pretty scary if you think about it. It's as if in competition for an audience, the media are falling all over themselves trying to "out-report" each other, when there really is nothing to report. In doing so, the coverage of the so-far-non-event has become the event.

It's fair to partially blame the Internet for this. In the day of instantaneous news, there is no time to be careful and confirm rumors, check facts, etc. If there's a HINT of a story, well, then THAT's the story. And you better get it online NOW. Bloggers who get media credentials make it worse. Reporters who use their Twitter accounts to share things that would not be comfortable printing in a real article make it worse. And the other "reporters" who then use those tweets to write their own articles REALLY make it worse.

I swear, I could ask the checkout clerk at my grocery store where he thinks LeBron will go, then post it to my blog, using my clerk as an "unnamed source," and ESPN would probably report it.

So why this rant? Well, this just sports, so who really cares, right? Well what happens when media so readily print rumors as facts in the coverage of other events? What happens when it's CNN, not ESPN, running report after report with just unnamed sources?

We have already seen how the media have affected this recovery from recession. It's taking longer than other economic recoveries, partially because negativity sells newspapers, and the general population is subjected to panic-inducing headlines every other day. Look at how the stock market has gone so far this year -- up and down and up and down, depending on how bad that day's news is.

So if the media can have this kind of effect on our economic recovery, and those media are becoming less and less responsible and more and more rumor mongers, it will be sensationalism, not facts, that guide our economic recovery?

This source says that's ridiculous.