Credit scores down locally

Credit scores continued on A4

The average credit scores of consumers in the region have slightly decreased since the recession, but more Ohioans are paying their bills on time and displaying better credit habits, according to a JournalNews analysis.

Delinquency rates for consumer loans have dropped in many categories, and U.S. consumers are being more cautious about taking on new financial obligations and they are better managing their debts, experts said.

But financial institutions remain risk averse, and consumers with credit scores that before the recession made them eligible for loans or low interest rates may no longer qualify.

“You’ve probably heard about access to credit tightening,” said Rod Griffin, director of public education with Experian, one of the largest U.S. credit-reporting companies. “It’s really a reflection of lenders being less willing to accept or take on risk.”

Lenders use credit scores to determine the likelihood that a consumer will repay his or her loan.

They also use scores to determine interest rates on loans.

The scores are increasingly important because more organizations are using the information to make judgments about people, said Bill Wood, a certified financial planner with the Advisory Group.

Employers often ask job applicants for their credit scores to gauge their financial responsibility. Car insurers use credit scores to set rates.

“Credit scores are every day more important than yesterday,” Wood said.

FICO scores are the most common type of credit scores. But another type is VantageScore, which was developed in 2005 by the three largest U.S. credit reporting companies — Equifax, Experian and TransUnion — to better measure the lending risks of consumers, including those who do not frequently use credit.

Region scores a ‘C’

VantageScore credit scores predict the likelihood that a consumer will become 90 days or more past due on a credit obligation. They are determined using factors including payment history, credit amounts used on accounts and the number of credit inquiries.

Consumers in the region on average had a VantageScore of 761 earlier this year, compared to 763 in 2011 and 762 in 2010, according to data from Experian.

In Ohio, consumers on average had a VantageScore of 755 earlier this year, the same as in 2011, but up from 754 in 2010. The average VantageScore of Ohio residents was 760 in 2008, before the downturn.

The range for the VantageScore system is between 501 and 990, and the higher the score, the less risk there is to lenders. The scores also translate into grades. An “A” is between 900 and 990; a “B” is between 800 and 899; a “C” is between 700 to 799; a “D” is between 600 to 699; anything below that is an “F.”

As the data show, the average credit scores of consumers only dropped by a few points during the recession. Experts said consumers for the most part continued to have the same repayment and credit habits during the recession and after it as they did before it began.

But the average score also did not wildly fluctuate because there was movement at the opposite ends of the credit spectrum, experts said.

Lenders avoiding risk

People with good scores took actions that improved them further. People with bad scores lost their jobs or their homes and fell further behind on bills or defaulted. The scores averaged out.

Griffin, with Experian, said even though the average credit scores did not drastically change during the downturn, the lending standards of financial institutions did.

Lenders became less willing to accept risk, and credit scores that may have secured a loan, a line of credit or a very low interest rate in 2005 may be insufficient to accomplish the same goals today, he said.

“A person with the same score may not be approved (for a loan) — not because the score represents greater risk in terms of likelihood of default, but because lenders are less willing to take on much risk,” he said.

But Griffin said there are signs that lenders are gradually returning to riskier loans. New credit in 2011 was still below prerecession levels, but it was up more than 10 percent from 2009 and 2010, according to Equifax.

Total retail credit card limits increased 6 percent between December 2010 and December 2011, and lending to subprime consumers increased 41 percent between 2010 and 2011, Equifax reported.

Lenders may gradually relax credit standards, but financial advisers said it is incumbent upon consumers to monitor their credit scores and take steps to improve them.

The best way to do this is to pay financial obligations on time and make full payments, said Melodee Sheils, director for the Consumer Credit Counseling Service.

Consumers should also avoid new credit inquiries, and they should contact creditors if they are having repayment issues, she said.

“People need to be aware what is on their credit report,” she said.

Consumers are displaying better credit habits. In the fourth quarter of 2011, consumer delinquencies fell in all 11 loan categories tracked by the American Bankers Association, including personal, auto and home-equity loans, according to the association.

Consumers are reducing their debt-to-income ratio, better managing their debt and they are more careful about taking on new debt, said the association’s chief economist James Chessen said in a prepared statement.

Keshawnda Ponder, 32, said she was turned down last fall for a personal loan for car repairs because her credit score was too low. She said for a long time she avoided loans and did not have much of a recent credit history.

She said she is interested in buying a new car, but she lost her job and she will need to find a new position before she can pay down debts to improve her credit standing. “As soon as I start working again, I will definitely try to get a small (line of credit) that I can use so I build my credit back up,” she said.

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Average VantageScore credit scores

2012 2011 2010

Dayton metro 752 753 749

Cincinnati metro (includes Hamilton) 761 763 762

Cleveland-Akron metro 760 760 760

Columbus metro 750 750 748

Ohio 755 755 754

U.S. 749 748 748

Source: Experian | Note: Data for 2012 is for February

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VantageScore credit score grades