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Credit Score Decline Spur Debt Cuts by Americans

By Sally Maison
Published: Friday, October 9th, 2009

Market analysts note that US credit score declined this year while lending standards were increased by creditors. According to experts, poorer debt standings and greater difficulty in applying for loan prompted most Americans to trim their debts, particularly focusing on credit card balances. Card balances went down by double digits for most states during September which is a sign of nationwide effort in being debt-free, experts say.

Credit Score Decline Spur Debt Cuts by Americans Research by an independent firm reveals stunning trends in credit card balances for the month of September. Card balance declined by as much as 16 percent for some states while others are not far behind with their equally huge decline. Four states with double digit decline in debts are Nevada, Kentucky, Tennessee, and Ohio. Overall, United States credit card debt went down by 4 percent from June to September, a trend which experts believe could bring what they call the tension of opposites.

Experts say that the nationwide drop in credit score spurred consumers into cutting back on their card debts. At present, the average US credit score is 672, which is two points lower than it was two months ago and four points less than January’s average. Analysts say that consumers in high debt level, which is the case for most Americans, were forced to pay back card balances. Such efforts in deleveraging, experts add, is a sign that consumers are more conscious in how their present actions could affect their financial future.

Market researchers also found out that 39 percent of consumers saw an increase in their scores while 29 percent saw theirs drop. The remaining 32 percent kept their scores intact. Texas has the highest percentage of increased scores, with 41 percent of its consumers going up the credit ladder. Only 29 percent got a decrease while 30 percent of Texans did not see a change in their scores.

Decreasing debts and rising scores mean good news for most Americans but experts fear its consequences to economy. They note that diminished activities in the debt sector could impede America’s recovery from recession. According to analysts, slow monetary circulation will keep national economy from regaining its pre-recession vigor. They say that consumer participation is significant in stimulating economic recovery. Specialists also add that low balances do not always mean better scores for consumers. Consumers who apply for credit and pay them regularly are more likely to get lower interest rates and higher scores from the bureaus, analysts say. They also encourage consumers to know more about debt management so they can help both the economy and themselves.

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