December 27,2008
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Everything You Wanted to Know About FICO Scores*, Pt.1 –
– (* but were afraid to ask.)Fair Isaac says it all. These are the people who make the fair judgment calls concerning our credit card behavior. They weigh all the factors, based on the generally accepted credit card industry standards and come up with individual FICO Scores for us all. Their judgment is becoming more and more important to both lenders and consumers concerning credit cards, as we all struggle to get through this economic upheaval.
The credit card industry is teetering from the strain as borrowers run into brick walls called job loss. As the industry tightens up on standards and minimum score qualifications slide higher up the scale, many borrowers with lower scores are finding themselves out in the cold. Two years ago, a rating of FICO 650 was good enough to get the best offers but now, that minimum is edging up into the 700s. Those with lower scores will no longer get the sweet credit card deals and many will be rejected altogether.
These next six categories listed are the most important for determining FICO scores and are weighted in order of importance as indicated by the percentage in parens at the beginning of each category:
1) (35%) Payment history: This carries the big stick. This can make or break you. A two-week late credit card payment won't necessarily wipe out your score but it might seem like it as your lender drops you to ‘Default rate' status. News stories come out every day about the general default penalties. Penalties are steep and rate hikes can be even steeper. Even the new government protective regs just released won't help someone legitimately classified as ‘in Default'. Severity is a big factor here and so bankruptcies, car repos and garnishments can knock a big chip off your score. Paying early and over the minimum consistently, over time will raise your score, however. Good consistent behavior goes a long way.