April 13,2009
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Credit Score: FICO ‘08, Pt.3
Coming soon to a CC lender near you...The Nature of the Payments: The way it is now (or always has been), small and insignificant defaults (like an unpaid water bill) would be listed as a ‘derogatory' on a credit card report. There are even cases where a collections agencies will split a single account into several smaller bills and then list them all separately on a credit report. This serves to create several different ‘derogatories' all for the same bill. This many hits can topple an otherwise good credit card score over four $99-bills. That's four demerits considered separately where, each takes away more points from a person's good score. This practice will be rendered harmless in the future. With FICO '08, insignificant unpaid debts which are less than $100 will no longer be detrimental to a person's credit card score. Further, more significant defaults will be scaled by their individual severity. Petty debts will be treated as petty.
Other Miscellaneous Variables:
o ‘Piggybacking': Many people remember the good old days when they could order a second credit card and entrust it to a worthy person. By authorizing that other person, that person could enjoy the benefits of card use, as well as build up a good credit card score of their own.
Then came the spoilers. Businesses were starting up and offering good credit ratings to those unworthy of credit at all. They would provide accounts in good standing and allow those with bad or no creditworthiness to be added as ‘authorized users'. They would charge a significant fee to these people than just let the credit card lender reap the consequences. This is called ‘piggybacking'.
Of course, the card associations had to stop this so they just shut down the whole operation. Those that suffered the most were the families. This is what spoilers do. With the new FICO 08 rules, credit card ‘piggybacking' is being given a new lease on life. The spoilers have been cast out and now, only family members will be able to enjoy this symbiotic benefit.
o A mix credit types: Lastly, having a mix of different credit types, in addition to credit cards, will be taken into account which will be more beneficial to consumers who responsibly handle these.