September 22, 2009

Credit scores fall behind consumers’ backs

Millions of U.S. borrowers are finding their credit scores falling in the recession through no fault of their own, credit analysts said.

The credit environment has a whole lot of moving parts that weren't there three years ago. Consumers can't just sit still and expect all is well, John Ulzheimer, president of consumer education for told USA Today.

Oliver Wyman, a consulting firm, reported a jump in consumers with seriously low credit scores from 34.4 million to 39.8 million between August 2006 and the March 2009, the newspaper reported Tuesday.

Many scores shifted because banks reduced lines of credit, which made it appear borrowers were using a higher percentage of their available credit, which indicates a higher risk.

Banks have no motivation to take an action that will impair someone's ability to obtain credit, said attorney Claudia Callaway, a partner at Katten Muchin Rosenman.

However, those who pay bills on time are facing the brunt of the credit line reductions, because they often have a higher amount of unused credit.

Banks have reduced these credit lines throughout the financial crisis to put more money into required reserve accounts that protect them from loan defaults, the newspaper said.