For all the talk about the unemployed going to work for small businesses, or start-ups to get us out of this depression, there is one major stumbling block: FICO
Figures provided by FICO Inc. show that 25.5 percent of consumers — nearly 43.4 million people — now have a credit score of 599 or below, marking them as poor risks for lenders. It’s unlikely they will be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use.
Because consumers relied so heavily on debt to fuel their spending in recent years, their restricted access to credit is one reason for the slow economic recovery.
Even credit cards are harder to get, with higher rates. Because bankers are a conservative bunch when it comes to small business (but reckless and wild when it comes to their own trading and holdings) it’s going to be even harder for small businesses to start up, because credit cards are one of the prime tools of the bootstrap start-up.
What’s also interesting to note:
On the positive side, the number of consumers who have a top score of 800 or above has increased in recent years. At least in part, this reflects that more individuals have cut spending and paid down debt in response to the recession. Their ranks now stand at 17.9 percent, which is notably above the historical average of 13 percent, though down from 18.7 percent in April 2008 before the market meltdown.
Or- put another way- the rich have gotten richer while the majority of Americans have hit the skids.
Yes, many people are learning to live without credit cards- especially after the wave of bankruptcies, but as to getting credit again, many are moving to a cash economy. This is bad news for the IRS- where a lot of unrecorded transactions can cause an under-reporting of income and hence- lower collections. If I’d had a hundred dollars for every customer that has asked for a “cash discount” so I could keep it off my books- I’d be a wealthy man (by my standards).
Just as a reminder, FICO isn’t much different than the bond-rating organizations- which all failed miserably in predicting the financial health of AIG, Lehman, etc.
There is only one thing that’s going to put people back to work- demanding accountability from American companies for the wild compensation of executives. We have to put financial incentives back into the tax codes for creating good-paying jobs in this country- or liability for tanking companies- beside tanking the company and bailing out with a golden parachute.
We also have to simplify the processes and regulations involved in starting up small businesses. The number of forms, tax reporting dates, payment schedules, licenses, permits, ID numbers, etc., involved in starting a small business, or incorporating, must be simplified fast.
The number one goal in America right now is putting people back to work- tied with ending the trillion dollar wars. It’s part of the reason this small business owner is running for Congress- and asks for your support.