May 25, 2009
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There's gonna be some credit score changes around here, Pt.3
Piggy-back is back...with wings.The amount of credit card debt has been another fear factor of the lending banks because people who tend to get in trouble generally tend to be heavily in debt. FICO ’08 has remedied much of this unfounded fear by proving that not everyone who carries a lot of credit card debt is as threat. Many people with a lot of open credit card accounts or having a high borrowing limit have also been found to be very responsible.
The overall change here is that, when the behavior of responsible credit card borrowers is found to be trustworthy, having more open accounts and/or higher borrowing limits is a good thing and will result in a higher credit score. Basically what we’re saying here, is that two different credit card consumers who, in the past that would have the same rating will soon find that they are shifting in opposite directions.
What will be the reasons for this? For one thing, those that habitually miss credit card payments will be treated very differently than those who only miss a payment once or twice a year. Another big difference will be the amount of the debt-load in question when an event does occur. Amounts of less than $100 will have very little effect. Larger debt-load will have a much greater impact on a credit score.
Another good effect is the return of piggy-backing. Piggy-backing is the effect of authorized credit card users upping their score by exercising the borrowing rights of the principle account holder. If the holder can maintain a good score, then the added users would also enjoy a better credit rating themselves just for being on the account. This became so badly abused that shyster companies were opening accounts in good standing and allowing strangers with lousy credit to pay them for the benefit of bettering their score. These were bad risk people seeking to fix their own score by attaching to someone else’s good rating (as a business). This had such a bad effect that the lending industry did away with piggy-backing’ entirely. Now it’s back but with the condition that it will only apply to family members.