Congratulations! Ratings agencies give tapped out consumers a boost to borrow more money to buy thin
It has been nine years since the crash of the last housing bubble, and the advent of millions of Americans experiencing foreclosures which crushed their credit scores below the levels in which they could borrow money at a decent rate. ¬†And since these dings on one’s credit score, along with those who also may have experienced their own hits from defaulting on miscellaneous consumer credit vehicles such as charge cards and medical expenses have now fallen off their credit reports, the people and algorithms at Fair Issac are ready to reward you with the opportunity to borrow more money once again.
Back in March of this year, in the latest push to artificially boost FICO scores, the WSJ reported that “many tax liens and civil judgments soon will be removed from people‚Äôs credit reports, the latest in a series of moves to omit negative information from these financial scorecards. The development could help boost credit scores for millions of consumers, but could pose risks for lenders” as FICO scores remain the only widely accepted method of quantifying any individual American’s credit risk, and determine how much consumers can borrow for a new house or car as well as determine their credit-card spending limit
Stated simply, the definition of the all important FICO score, the most important number at the base of every mortgage application, was set for a series of “adjustments” which would push it higher for millions of Americans.
The outcome of these changes was clear for the 12 million people impacted: it “will make many people who have these types of credit-report blemishes look more creditworthy.”
Now, as the Wall Street Journal points out today, efforts to rig the FICO scoring process seems to be bearing some fruit.¬† The average credit score nationwide hit 700 in April, according to new data from Fair Isaac Corp., which is the highest since at least 2005. – Zerohedge
But the real question to ask is, why are the credit agencies suddenly willing to change their rating methodologies after using a standardized mean to determine creditworthiness after so many years? ¬†Perhaps the answer lies in the fact that Americans are now more deeply in debt that they were back in 2007 at the height of the Housing Bubble, and that the economy looks to be moving into its next recession which would kill consumers being willing to spend on discretionary purchases.
Like with the creation of subprime auto loans and mortgages, the debt based financial system needs and requires the continuous creation of new debt just to sustain itself. ¬†And with the government tapped out with $20 trillion of debt, and the consumers also tapped out with $12.6 trillion, all safety measures imposed following the 2008 financial crash appear to ready to be removed just so that the economy can kick the inevitable can down the road just a little longer before the next crisis hits that will be far, far worse than the one experienced just nine years ago.
Kenneth Schortgen Jr¬†is¬†a writer for The Daily Economist, Secretsofthefed.com,¬†Roguemoney.net, and Viral Liberty, and hosts¬†the popular youtube podcast on Mondays, Wednesdays and Fridays.¬†Ken can also¬†be heard Wednesday afternoons giving an weekly economic report on the¬†Angel Clark radio show.