One of our biggest themes at Wall St. Cheat Sheet is the emerging Two-Class America. Now, FICO is out with fresh data showing the number of subprime borrowers reaching new record lows.
Prior to the recession, 15% of Americans had a credit score less than 599. As of April, 2010, that number skyrocketed to 25.5%. That’s a 70% increase!
Conversely, the number of Americans with a credit score above 750 has fallen only 6.5% from 40% to 37.4%. This clearly shows the credit crisis has disproportionately affected the middle-class, lower-middle class, and lower class.
What does all this mean? We are witnessing a negative feedback loop in which an increasing number of people will not qualify or be able to afford interest payments on goods or services they were able to afford a few years ago.
The two areas this will hurt most are the highest ticket items: houses and cars. Sexy commercials for historically low mortgage rates or zero interest car payments are great only if you have to credit score to qualify for these incredible opportunities. Those with riskier credit profiles quickly learn the fine print exclusions refer to them.
Consequently, we continue to see strong evidence supporting our Two-Class America theme. If you want to catch up on previous data and rationales for what we consider one of the biggest current trends, check out these truly popular posts:
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