(OT) US Debt Rating and your FICO Score

For the USA to have a ratting of AAA is sorta like you having a FICO score of 850.

Eventually you are gonna open more credit accounts than your income can support, and your Debt To Income ratio (DTI) goes too high, and the 850 score turns into 800, still a good score, but not as good as it was.

S&P has said that we spend more than we make, pretty much the same thing that the banks say when your DTI soars. Perhaps you had great credit, and the perfect job, so you bought a $5000 TV, a Jaguar, speed boat, motorcycle, really neat camera, big house, and the list goes on. Then the bottom falls out of your income -- you loose your job, the government takes in fewer taxes because the econony is in the dumper -- but still have the same existing bills for all of the other stuff you bought, and you want to buy more -- maybe a new LaZBoy sofa, whatever. They run your credit and find that your outgoing dollars exceed your incoming dollars, so your credit worthiness takes a dump.

This is what just happened to the USA.

We have the 3D TV, Jag, boat, bike, and so on that we bought on credit when times were good. Now, the government is taking in less revenue because there are no jobs so nobody pays taxes. The government has to stop adding to the list of crap it wants and figure out how to pay for the crap it already has.

Dropping the credit rating is more a function of the DTI than the FICO Score, but the idea is the same -- too much debt for the income to cover. FICO scores drop because the debt is not repaid, the credit worthiness drops because new debt on top of the existing debt cannot be sustained. The USA's FICO score has not dropped yet because we have not skipped out on a debt payment. The reduction of the credit rating means that those that watch such things say that we will be skipping out IF more debt is incurred.

Our DTI is too high. That's what the AA+ rating says. It's not exactly the same as dropping the FICO from 850 to 800, but pretty close. Dropping from

850 to 800 means we are already 30-days behind on one or more bills, but that only happens when the DTI is too high.
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Jeff Strickland
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