Another Sign of Debt Deflation

from LA TImes:
Battered by unemployment and tighter lending standards, the credit scores of millions of Americans are sinking to new lows.

About 25.5% of consumers — or 43.4 million people — had credit scores below 600 in April, according to FICO Inc. Historically, only about 15% of consumers — or 25.5 million — have had scores below that level, FICO said.

Those in the middle of the spectrum have also declined. Moderate credit scores, between 650 and 699, fell to 11.9% from a historical average of 15%.

Consumers with low credit scores will have increased difficulty obtaining credit cards and other loans, said Christian deRitis, director of credit analytics at Moody's Analytics.

"Until the labor market turns around, people will remain unable to pay bills," DeRitis said. "Lowered consumption will only add extra friction to the economy."

The calculation for FICO scores considers two factors: how consistently bills are paid and how much available credit is in use. Slow or delinquent payments and high amounts of debt result in lowered scores.