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February 6,2009

  • Rules of FICO'08 in 2009, Pt.4

     – Patching holes leaves a better system.

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    Piggybackers must qualify: Lastly, the age old question of the recognizance blanket is addressed. ‘Jumping the line' of good credit by just being an "authorized user" used to bring the poor-credit card score person up on par with the person with better credit card rating (minus a little). This practice was badly abused, of course. It reached the point of being commercialized by businesses ‘selling' good credit card ratings to bad risk to the detriment of those of low risk. So, the industry put a lid on it and stopped extending ‘good credit' ratings to any ‘authorized users' at all. Best short-term fix but, not the best long-term. A better long-term fix is being initiated where, spouses and children will qualify for a good credit rating. Others, not included.

    A well-rounded mix credit types is beneficial: In the future, credit scores will place more emphasis on having a mix of credit cards and personal loans. Student loans and auto loans will be included into this formula. Combination of loan types give lenders a better cross-sectional view of risk and a healthy mix will help a credit card score.

    Big picture of the new frontier: The new rules have been thoughtfully devised from the battle-tested proving ground we're in right now. More comprehensive and dimensional aspects will separate real patterns from myth. If you're a responsible credit card consumer but slip up now and than, no big deal. If you're a shyster and slip in and out of shady deals, you'll probably be found out.

    The new tone is exercising more prudence in risk. The job market is more tenuous than ever and credit card borrowers must exercise more restraint (as they already are). Most, if not all of these changes, are already in harmony with nature. Though, yet another change in the rules, it appears to be a healthy change. TransUnion are leading the way by being the first to implement these changes.

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