April 13,2009
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Credit Score: FICO ‘08, Pt.2
Small things matter less; big things matter more.Credit history: Dig those old credit cards out of the sock drawer and start usin' ‘em again. They can be worth a lot. Banks are finally waking up to the reliability of gauging credit card holders by how many years they've maintained a ‘good standing'. If you hold an active fifteen or twenty-year credit card account and have kept it in is good standing, you're AOK. Short term accounts have been found very unreliable as a measure of how long it will last. One thing to remember however, is that credit card not used in six month can be listed as ‘inactive' and closed by the bank anytime. Use them at least once every six months. Little ‘auto-charges', if you have any, become practically maintenance-free. Like $4.95/mo. D&D insurance.
Credit Utilization: Again, the basic rules stay the same, but this measurement is heavily valued by the credit card lending banks. The acceptable ratio today (it varies over time) is not charging (total balance) more than 30% of the limit the credit card has. The standard last year was 50% but now, between 10% and 30% are the acceptable limits.
The number of Late Payments: The way it has been, just making one late credit card payment was enough to drop a consumer into ‘default' status. FICO Scores could drop as much as 100 points just for this one-time mishap. It may still be this way now but the new standard will be much more forgiving. A single ‘burp' like this in the future will still be tabbed but will have little effect on a credit score. More then one occurrence within 12 months, however, will have more serious consequences.
The number of On-time Payments: This feature was pretty much taken for granted in the past. New FICO Rules, however, will place more importance on this valuable prediction. Consistently responsible actions will add to a credit card consumer's creditworthiness, as it should.