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2009 Not a Good Year for Credit Scores

By Sally Maison
Published: Saturday, October 10th, 2009

As US economy enters the last quarter of 2009, most consumers say that credit scores suffered serious damage this year. Some lamented that they perceive a lasting damage on their creditworthiness. Delinquent payments, bills not paid at all, defaulted loans, foreclosures, and bankruptcy filings are just some of the factors enumerated by specialists which they attribute to this year’s consumer woes.

2009 Not a Good Year for Credit ScoresAccording to the American Bankruptcy Institute, 1,046,499 bankruptcies were filed during the first nine months of 2009. That means more than one million Americans suffered huge losses in scores because of bankruptcy alone. Unfortunately, this will affect their credit scores for up to ten years. Statistics reveal that bankruptcy figures this year are the highest in four years, a record which date back to the time when Congress did not pass yet a bankruptcy reform law, a legislation that makes it more difficult for consumers to file bankruptcy.

Analysts see another problem in the future which could result in poorer credit score trends. Federal Reserve Chairman Alan Greenspan predicts that national unemployment rates could go beyond 10 percent as the year ends, a projection supported by various economists. They noted that Augusts’ rate of 9.7 percent went up to 9.8 percent in September. Analysts say that the increase might be fractional, but it could mean serious troubles if the increase continues.

Economists say that another series of unemployment will not be good for US economy since it will affect not only consumers, but finance institutions as well. Card issuers are predicted to write off more accounts and could lose millions of dollars in profit. Lenders worry about their future since their profit through interest rates and late payments would be cut off as new government legislations take full effect next year. On the other hand, consumers who have charged off accounts could expect severe damage on their credit scores.

Specialists remind cardholders that if they do not pay a balance in more than 180 days, they are very likely to be written off by creditors. Analysts add that the chargeoff rate this year is 75 percent higher than 2008’s. This places more pressure on consumers as they struggle to deal with unmanageable debts. Experts predict poorer credit scores if card trends do not change as the year ends.

On a more positive note, some experts say that negative effects of the new credit law, such as higher credit score requirements, will start to decline when CARD Act is fully implemented in February 2010.

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