Credit Score Shell Game

As High Scores Vanish, Borrowers' Luck Runs Out

As banks tighten their lending standards, one number is playing an increasingly critical role in determining the financial fortunes of consumers: the credit score.

Lenders use them to decide whether to extend credit and at what interest rate. As lenders demand higher scores, more Americans are having trouble getting loans.

Others aren't getting loans at all because their scores have dropped. They may have lost their jobs and not kept up with credit card and mortgage payments, or in some cases card companies have taken adverse actions against them. Eager to mitigate risks, card issuers have closed accounts or slashed credit lines, leaving customers with less available credit. Customers who have used up much of their credit then are closer to maxed out, which further hurts their scores.

To add to their crisis, people who try to take matters in hand and pay to find out their credit scores discover that it can be difficult to learn the score that lenders actually use to evaluate them.

"Credit scores have taken on a new degree of importance," said Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable, an industry group. "In the past it was a question of 'What will your interest rate be?', and now it's 'Will you even get a loan?' "

As a result, credit is less available to both low-risk and high-risk consumers at a time when they -- and the economy -- need it the most.

"The consumer who desperately needs credit right now is in a very bad situation," said John Ulzheimer, president of consumer education for Credit.com. "The consumer who is remaining consistent, the market is passing them by . . . You have more cars sitting on car lots and you have houses with for sale signs."

Jane Graver is one of those desperate consumers. She once had a credit score of about 700, which before the credit crunch made her a desirable candidate for a loan. Most lenders use the FICO score, which runs on a scale of 300 to 850.

Faced with a divorce, serious illness and tough economy, Graver, a small-business owner, missed a few credit card payments and used up her home-equity line of credit. She was close to being maxed out. Last year, her score dropped to the mid-500s.

Now that lenders are demanding credit scores of 720 or higher, she is considered even more of a risk and cannot get a mortgage -- or even find a landlord willing to rent her a home. Her house in Orange, N.J., sold at a price high enough to cover her mortgage and line of credit, but she is struggling with what to do next.

"It is difficult to cope," said the mother of two. "I am absolutely unable to get a mortgage."

As scores become increasingly important, they have also become increasingly perplexing. Consumers have free access to the credit reports used to determine their scores, but they have to pay to check them. With the heightened interest, many borrowers have been doing just that, buying their scores from a variety of Web sites, only to find out that they might be different from the ones lenders use, according to bank officials and consumer advocates.