Providing yet another headwind for economic recovery, FICO, a leading provider of credit scores, said more Americans are seeing their average credit scores fall to new lows.

The shift is significant not just because of its magnitude, but also because the repurcussions of these lower credit scores will be with us for a long time to come.

The numbers also paint a picture of an increasingly polarized consumer base.

On the bright side, more people are beginning to achieve a credit score of over 800, the top tier of creditworthiness. That's because many people have cut spending and are paying down debt in response to to tighter credit and uncertain economic times.

But more troubling is that more consumers are slipping into subprime categories.

About 35 percent those with credit histories—or some 70 million consumers—now have a credit score below 650, which means that they are considered subprime—or even, nonprime—borrowers, said John Ulzheimer, president of consumer education at Credit.com.

Ulzheimer—who once worked at FICO, when it was known as Fair Isaac—said the shift in credit scores is the most massive move he has ever seen.

Most notable shift is what is happening in the middle. Consumers with moderate credit are probably the group most likely to borrow to finance homes, cars and other large purchases. But their credit scores are shifting downward, making it difficult to qualify for affordable loans.

Credit scores are impacted by a variety of circumstances including the number of credit obligations an individual has, whether an individual pays bills late, or even how much credit is available to a person. Once a credit score slips because of late payments, a loan default, or a bankruptcy filing, it can take seven to 10 years for these events to be removed from a person's credit history.

The downward shift in credit scores reflects the confluence of many events, Ulzheimer said. In order to reach this magnitude, it takes a number of events: auto repossessions, bankruptcies, foreclosures, and unemployment.

"It is the perfect storm," Ulzheimer said.

But among these factors, the decline in housing values is likely the biggest factor in the shift.

Ulzheimer has looked at FICO's data on a regional basis, and has seen that the regions where consumers have seen the biggest downward shift in credit scores align with some of the hardest hit regions in the housing crisis. These regions include Southern California, Arizona, and Nevada, among others.

Housing plays such a key role because for so long consumers used the home equity in their houses whenever finances got too tight.

"Now, there is no safety net," Ulzheimer said.

"If the value of homes were headed north, banks would be thrilled, though none would go on the record and say they were (with the lower credit scores)," Ulzheimer said. That's because they would charge those with marginal credit scores higher interest rates and offer loans with more advantageous terms for the bank.

But under the current situation, with unemployment remaining at stubbornly high levels and housing appearing to be headed downward again, lenders are leery of taking on more risk.

According to Ulzheimer, lenders are slowly re-entering the market, but they are doing so from the top down, beginning with those with the strongest credit.

That isn't much help for consumers who are seeing their scores slip into questionable territory.

"It's hard to see the good news in this report, unless you are speaking for the payday lenders, title lenders, and pawn stores," Ulzheimer said.

Questions? Comments? Email us at

(CORRECTION: A chart included in an earlier version of this article, misstated the range for the "Excellent" category. The credit score for this range is 750-850, not 800-850 as originally reported.)