One in four Americans have credit trouble

SALT LAKE CITY — Having good credit saves you money. But now the definition of good credit is changing, putting more pressure on consumers to get clean and stay clean.

More entities are using credit scores and have identified certain tiers of credit risk, said Al Bingham, mortgage adviser for Murray-based Republic Mortgage and author of “The Road to 850: Proven Strategies for Improving your Credit Score.”

“Four years ago, if you got approved with a 620 credit score, you got the same rate as someone with a 750 credit score,” he explained. “That’s no longer the case.”

In the fallout from the recession, Bingham said that credit scores have decreased approximately 12 points during the past five years.

Last year, about 46 percent of all FICO scores were below 700, according to Fair Isaac Corp. — with nearly 25 percent of all scores below 600.

“That’s huge — one in four Americans,” Bingham said. “If you’ve got a score below 600, you’re out of the (credit) market.”

It means those working to rebuild their credit have a higher mountain to climb. But it's not insurmountable.

For Janell Austin and her family, the rocky road to financial chaos began in 2006 just as the housing bubble was ready to burst. They were consumers at the trough of too-easy-to-get” credit and have paid the price.

“We bought the house at the peak, just before everything went south,” the 28-year-old married mother of two explained. They bought their first home for $270,000 in West Jordan, and then proceeded to acquire the trappings of what they thought would contribute to a happy family life.

But unexpected expenses and overspending began to propel the Austin financial ship into troubled waters.

“I had surgeries and my husband had an emergency surgery and the kids were sick — they were in the hospital a couple of times,” she said. “Buying a trailer, buying a truck and other things all started to pile up.”

They were so financially strapped, they were living like “college students basically.” After paying on all the credit cards and consumer loans each month, they had little money left over to meet their basic needs like groceries.

“We just got head over heels with our budget,” Austin said.

Then, in 2007, the housing bubble burst, the economy faltered and they became one of the scores of Utah families who found themselves upside down in their mortgage and watching their credit rating plummet right along with it.

They eventually had to take an $110,000 loss on the property when they sold it for $160,000 in a short sale in February 2010. They then set off on repairing their damaged credit.

“I figure it’s my responsibility to fix my credit,” Austin said.

With some diligent planning and disciplined saving, they were able to pay off $26,000 in debt and are hoping to get into good enough shape credit-wise to purchase another home in the next year or so.

The Austins’ situation is not uncommon. Lenders have tighter restrictions on available capital and credit scores are a key barometer to qualify not just for cars and houses, but also for employment or insurance applications as good credit is becoming a barometer of good character.