The document has moved .

 

The Wall Street Journal analyzed more than $2.5 trillion in subprime loans made since 2000 and found that as the number of subprime loans grew, the loans were being issued to borrowers with better and better credit scores—borrowers who could have qualified for traditional loans with more reasonable terms.

In fact, the WSJ says that at the peak of the subprime boom in 2005 over half of the subprime loans went to people with good credit.

By 2006, 61% of subprime loans were going to people with good or even excellent credit scores.

Why?
The surprisingly high number of subprime loans among more credit-worthy borrowers shows how far such mortgages have spread into the economy -- including middle-class and wealthy communities where they once were scarce. They also affirm that thousands of borrowers took out loans -- perhaps foolishly -- with little or no documentation, or no down payment, or without the income to qualify for a conventional loan of the size they wanted.

The analysis also raises pointed questions about the practices of major mortgage lenders. Many borrowers whose credit scores might have qualified them for more conventional loans say they were pushed into risky subprime loans. They say lenders or brokers aggressively marketed the loans, offering easier and faster approvals -- and playing down or hiding the onerous price paid over the long haul in higher interest rates or stricter repayment terms. As we've All three credit reporting agencies recently announced plans to let consumers The continuing subprime meltdown is leading jittery creditors to reduce cardholder credit limits at the first sign of trouble. According to a recent survey, up to Capital One will start reporting cardholder credit limits to the three credit bureaus, a common practice from which most cardholders had no idea their creditor abstained. Credit limits help TransUnion, Experian and Equifax determine credit utilization, which accounts for 30% of a credit score. Capital One's decision, which will take effect by the end of the year, will likely boost its cardholders' credit scores. From the Washington Post:

Utilization basically boils down to this: If you've got a card with a $5,000 credit limit and you're carrying a $4,750 balance, you've got a 95 percent utilization rate. FICO's scoring system -- which runs from 300 to about 850 -- subtracts points for high ratios. The rationale is that people who are maxing out their cards are perceived as riskier and more likely to fall behind on payments.

On the other hand, say you're carrying a $500 balance on that same card -- a 10 percent utilization rate. The FICO system rewards you with extra points because of your moderate and responsible use of available credit.

When a creditor withholds or neglects to report your limit, the FICO software cannot compute a utilization ratio. Typically, it either doesn't use that credit line to compute the score or substitutes your highest reported balance on the account for your actual limit.The end of one secretive and harmful practice makes you wonder what else they might be hiding from their cardholders.

A Boost for Credit Scores [Washington Post]
(Photo: gar