The flip side to a decade of delu­sion

Austin American-Statesman - - OPINION -

While it’s pop­u­lar to crit­i­cize Washington for spend­ing in­sanely and re­fus­ing to live within a bud­get, the re­al­ity is that too many Amer­i­cans aren’t walk­ing the tough talk in our own house­holds.

Ac­cord­ing to a re­cent re­port, 25.5 per­cent of all con­sumers — nearly 43.4 mil­lion peo­ple — have credit scores of 599 or be­low, mean­ing they are bad lend­ing risks and un­likely to get credit cards, car loans or mort­gages. That num­ber is up 2.4 mil­lion in the last two years as the econ­omy has shed jobs and spawned fore­clo­sures.

No won­der the coun­try’s fi­nan­cial re­cov­ery seems stuck in neu­tral. Con­sumers who can’t bor­row money can’t buy houses and cars, make sub­stan­tial home im­prove­ments, pur­chase big durable goods or, in some case, even find af­ford­able auto in­surance. Big-dol­lar pur­chases like these fuel eco­nomic growth and give busi­nesses rea­sons to hire work­ers and ramp up pro­duc­tion. Record-low mort­gage rates or in­ter­est-free car loans are en­tic­ing but use­less if too few Amer­i­cans have the credit scores to qual­ify.

These num­bers pro­vide a sober­ing back­drop to the nation’s eco­nomic tra­vails. If they con­tinue, more Amer­i­cans will not qual­ify for — or be able to af­ford — in­ter­est pay­ments on goods or ser­vices they were able to buy a few years ago. And that will have a neg­a­tive domino ef- fect on the econ­omy and thus on those with ex­cel­lent or mod­er­ate scores.

Right now, those with mod­er­ate credit scores (650 to 699) make up nearly12 per­cent of con­sumers, a slight de­crease from 2008. Whether the credit-wor­thi­ness of this group holds steady or im­proves in the next few months will be yet an­other sig­nal of the econ­omy’s out­look and of the will­ing­ness of con­sumers to make tough per­sonal choices about debt and spend­ing.

Like it or not, this is the flip side of years of eco­nomic self-delu­sion. Con­sumer spend­ing based on credit fu­eled the U.S. eco­nomic boom be­yond what sen­si­ble fi­nan­cial plan­ning would have dic­tated. Amer­i­cans loaded up on credit cards that were ap­proved with­out se­ri­ous credit checks, and they bought houses and cars that they couldn’t af­ford be­cause nei­ther len­ders nor con­sumers could ut­ter the word “no.” Un­der pres­sure to re­build their bat­tered bal­ance sheets, banks now are more dis­crim­i­nat­ing in their loan de­ci­sions. In turn, more Amer­i­cans are con­fronting their fi­nan­cial mor­tal­ity.

Credit scores aren’t go­ing to get bet­ter un­til two things hap­pen — the econ­omy im­proves and Amer­i­cans change the spend­ing habits that helped cre­ate now-top­pling sand cas­tles of false pros­per­ity. Yes, Washington must get the nation’s fi­nan­cial house in or­der, but the rest of us also must walk the talk.

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