October 10, 2009
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Bad Economy Steers Credit Score Requirements, Pt. 1
The dirt-road detour.It seems that the brighter outlook provided by the new FICO '08 credit card scoring with all of the added fairness has taken a back seat to a modification of the old version. The new system was designed to be more accurate with risk assessment for the credit card lenders and also be more fair to the consumers. These were such provisions as putting more emphasis on track records vs. incidentals. It would be put more emphasis on long-term stability of good standing on older credit card accounts (depth of history). It would be a big plus to have a large supply of available credit across multiple credit cards. One missed payment per year would only show up as a ‘blip' on the radar screen. Extraneous other kinds of derogatory debt away from credit cards were greatly downplayed. But alas, this progressive direction has never come to fruition.
Instead of getting a brave new world, what we're getting is a down-graded system based on all the negative without consideration of the added reliability of the new system. For one thing, the stalwart indicator, called the FICO score has, effectively, been shifted 50 points more negative by adding another possible 50 points to the top. The range of scores which have always ran from 300 to 850 now reads 300 to 900. This, effectively, separates the best from the 'even better' (who get the only good credit card terms today). However, those credit card holders in the mid-range have effectively been moved down about 50 points as the 'acceptable bar' has now been raised from 700 to 750. So, if your effective credit score hasn't moved up since last year, it has probably moved down.
As far as the breakdown of how this score is figured, the old rules still apply. Components of the credit card score:
> Payment history: 35%
> Amounts owed: 30%
> Length of credit history: 15%
> New credit: 10%
> Types of credit used: 10%