Your credit scope is one of the most important financial metrics that you should keep track of.  As a key measure of your credit worthiness,  it impacts your ability to get loans and other kinds of credits, and determines how much you will pay for the credit that you can get.

The most commonly used credit score in the Financial industry is known as FICO. The FICO score ranges from a low of 300 to a high of 800.  Those that are able to attain a FICO score of 750 or higher are usually eligible to obtain loans at lower rates than people with poorer credit scores.

Given the impact of the recession, millions of Americans are seeing their credit scores lowered significantly due to late bill payment, foreclosures and increased debt.  But even if you have been paying your bills on time, have not gone into foreclosure and have not increased your debt, you could still be hit with a lower credit score.  This is due to the fact that many lenders are closing credit card accounts and lowering credit limits for millions of consumers and business owners.

To give you a sense of the magnitude of the problem, it was reported in the USA Today that credit limits declined from $3.5 trillion dollars in June ’08 to $2.9 trillion in July ’09.  The number of bank accounts has dropped from 435.2 million to 356.6 million in the same time period.

The lenders justify their actions by stating that in order to reduce their risk in this difficult economy they have to cut credit card lines and close accounts.  The consequence of this action is that the percentage of available credit, which is one of the main components of the FICO score, is increasing, which makes people look riskier to lenders. 

To make things worse, more than 400 lenders have started testing or using a new version of the FICO score called FICO 08.  This new score emphasizes how much available credit consumers are using, which just exacerbates the problem.

With the housing market in shambles, many consumers are resorting to modifying their mortgages so that they can afford to stay in their homes.  The problem is that these loan modifications can cause significant damage to your credit score because, even though the amount of principal does not change and no debt is forgiven, these modifications are reported as “partial payments.”

Now more than ever, it is very important that you keep a close eye on your credit score. It is also imperative that you do everything possible to keep your current score from being lowered.  In the article Build Financial Success with a Strong Credit Score we reviewed some of the steps you could take to influence your credit score in a positive way.  Even if you have been negatively impacted by the recession and have seen you credit score take a hit, following the steps in the article will help you start rebuilding your score back to a healthy state.

By rebuilding you credit score one step at a time, you will soon enough be on your way back to financial success.