FICO and Ohio-3

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.

via More Americans’ credit scores sink to new lows.

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.

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1 Response

  1. Karri O July 13, 2010 / 11:08 pm
    <<Or- put another way- the rich have gotten richer while the majority of Americans have hit the skids.>>
    Well, that’s a bit of a reach.  I’m in no way rich, but I’m financially educated and responsible with my spending.   Having good credit doesn’t automatically make me Republican :)
    I’m also a freelancer, and have my own business, and depend on my credit cards for business costs until I get paid.  Even in this crappy economy, NONE of my credit card limits have been decreased or my interest rates raised.   I can only presume this is due to my decade plus track record of timely payments and living within my means.
    I’m very sympathetic to those who have not been so fortunate, or who have had their limits slashed (and credit scores tanked) at the worst possible time.  And you have a great point about the banks ironically putting the rules of responsible spending limits on the people, but acting like morons when it comes to their own financial risk management.   I don’t however think the solution is to start back up giving easy money to those (including and maybe especially) small business start ups that can’t meet realistic guidelines to take on a loan or line of credit.
    Any long term small business owner can also advise on the stupidity of under the table payments (usually for work arrangements with no written contract or labor without workers compensation) – a great recipe for a put you out of business lawsuit or tax audit.
    Your blaming the FICO system for keeping small businesses down ignores the reality that FICO scores are a very real indicator of people’s ability (or propensity) to repay the debts they take on, and the fact that most small business do fail.    Vilifying large corporations for their lack of responsibility while at the same time advocating for banks to keep loose regulations of credit lines so small business owners can more easily run themselves into bankruptcy doesn’t make sense.
    Agreed though on the simplification of the small business startup.  An effective, streamlined one-stop shop for small business startups is a great indicators that a city is going to be effective in attracting new businesses.   Would be great to see a city level department that could actually be integrated and cooperative with the county and state Development Departments.

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