You pay your bills and attempt to maintain a strong credit score to keep your interest and insurance costs low and make yourself employable. However, your credit score is declining. What is going on?

Banks and lenders are shoring up risk by closing a record number of credit card accounts and reducing many individuals’ credit lines. As this happens, people with excellent credit records are seeing their credit score decline as much as 50 points. Credit scores range from 850, which is excellent, to 300 which is very poor. When a lender reduces your credit limit, this can reduce your score because your balance has a higher probability of being a larger percentage of the limit. Other lenders may close accounts with low or no activity, which can also reduce the credit score. This can impact many of you.

• For example, 114 million households in the U.S. have at least one credit card, while only 51.4 million households have a first mortgage.
• Forty-two percent of employers are now checking credit scores on job applications.
• A 50-point lower score will usually increase your interest rate by 25-30 basis points, or approximately a quarter of a percent.
• The average credit score in America has declined by about 5 points because of housing and employment problems.
• Watch out for two factors that contribute to 30% of your credit score:
• • Number of accounts with balances: A higher number of credit card accounts with balances contribute negatively to your credit score.
  • Credit utilization ratio: What percent of the total line is in use at a given time? The higher the ratio, the more impact on a lower score.
• Top areas in the U.S. where credit scores are declining the fastest are:
• • Miami: negative 12 points
  • Phoenix: negative 14 points
  • Southern California: negative 17 points
  • Washington, D.C.: negative 6 points

Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.