Average FICO scores dropping: One in four Americans below 600

More than one in four Americans now has a FICO credit score below 600, which is considered low, and could have difficulty getting credit cards, car loans and mortgages.

Statistics released from FICO Inc. show that 25.5 percent of the 170 million Americans with active credit accounts have scores of 599 or below on the 300 to 850 scale, based on data from April consumer credit reports. The median score is 723.

The data also showed that 2.4 million more people have fallen into the lowest FICO categories in the past two years. Historically the rate of people with scores of 599 or lower has been around 15 percent.

Marietta resident Bo Metz, 32, said he wasn't surprised to hear about the new numbers.

"Of course people's credit is bad," he said. "The economy is terrible, there's no work, and people can't pay their bills. I only would have been surprised if it was the other way around."

Metz said he's never checked his own score but doesn't plan to apply for a loan anytime soon.

That's the time when the FICO score has its biggest impact, said James Watson, a financial adviser with Fleming Watson Financial Services in Marietta.

"It's very important to those who want to buy a home to get a potentially better interest rate or for anything that requires borrowing activity, like a car loan," he said. "Lenders pay attention to the ratings. It's just one tool they use to make sure you have the ability to pay them back."

For those whose FICO scores may not be as high as they want, there are ways to turn them around, although there is no quick cure.

"It's not something you can do overnight," said Watson. "But if you really have the desire to do it, you can improve your score by reducing the debt percentage of your total net worth and making payments on time."

FICO scores are based on five main factors:

Payment history. Even paying a bill 30 days late or less can affect this.

Amounts owed based on total worth. One way to measure this is looking at credit card balances versus total credit card limits.

Length of credit history. The longer a person has had credit, the better.

Amount of new credit. If someone has applied for a lot of new credit recently, it could hurt his or her score.

Types of credit used. A variety is best.

The best ways to turn around a poor FICO score are to pay bills on time, keep credit card balances low and to only apply for and open new credit accounts as needed, since opening new accounts just to have more credit could backfire.

A moderate score is considered to be between 650 and 699, a number that has slipped from applying to 15 percent of the nation to 12 percent.

But the numbers aren't all bad news. According to the latest FICO report, the amount of people who have a score of 800 or higher has risen from an average of 13 percent to nearly 18 percent in the last few years.

The best way to avoid the problems that can arise with a low credit score is, of course, to never get in the position of having a low score, said Watson.

"It's very important that young people starting out not get over-extended on debts and that they pay their bills on time," he said. "It's got to start from the time you get out of college and get to work because it's hard to correct five years later. If it takes five or six years to occur, it will probably take a similar amount of time to get it corrected."