May 25, 2009
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There's gonna be some credit score changes around here, Pt.2
Old myths are re-evaluated.When we say the new system is “more forgiving”, what we really mean is that it’s more fair. A general credit card score rise in the mean (most people) is expected because to old model tends to broadly condemn people for unrelated issues or is unfair in what really matters. As a result, the credit card lenders will also be better protected even with the rise in ratings. Credit card defaults are expected to fall by, as much as, 15% because of the focus being placed on the ‘true offenders’. Those will be brought to bear and have to pay more while having much of their credit taken away. Those who are deemed to be more creditworthy (even with currently low scores) will be given better levity with better borrowing terms.
So, what are these differences, anyway? For one, it used to be thought that someone with ‘too many’ open credit card accounts posed a higher risk. Not true and this has been corrected. Consumers with more accounts in good standing will be rewarded for it. People who have very old accounts will also be rewarded. Bottom line: Using most of your available credit, will have an even greater negative impact on a person’s credit score. One way this typically happens is by closing unused accounts or letting them go inactive.
Take note, however, that the issuing banks will continue to close old accounts at an unprecedented rate. The reason is that the potential of these cards being suddenly maxed out could blind-side the banks. Therefore, the credit that could be used (although not used) causes the banks to have to set more money aside just because of the possibility. So, use those old credit cards at least every six months to keep the banks from closing these old accounts.