Your Plastic Over Your Bricks? Are You Kidding?

Two years ago, Jim Cramer from CNBC’s Mad Money suggested that people walk away from their homes if their value was down 20 percent. And an Arizona law professor recently suggested the same thing in his paper titled “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.” Now it seems as if many of you are actually listening and executing their advice.

FICO, the company responsible for the FICO credit scoring system, announced today study results that “in 2008-2009, bankcard accounts were just 1.6 times more likely to become 90 days delinquent than were mortgage loans.” And even more disturbing is the fact that their study showed that mortgage delinquencies have risen for higher-scoring individuals. These are the people who are being perceived by lenders as having lower credit risk.

For the folks who are missing payments on their mortgages because they are entering into a loan modification program and are being forced to miss payments during their trial period, these should be removed because of their arrangement with their lenders. For those folks who are missing payments because their payments have adjusted to now include principal, a meaningful amount of those loans will go into default and will end up as foreclosures.

This also seems to verify what many personal finance types have been saying over the past 12 months:  Consumers are now seeing more value in keeping a credit card open than keeping their roof over their head. Losing the access to capital and the ability to conveniently shop has taken on new importance in the post-credit crunch environment that saw millions of cards closed and credit limits slashed.

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

John Ulzheimer Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on Credit.com News & Advice.