October 10, 2009
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Bad Economy Steers Credit Score Requirements, Pt. 4
Need to put on weight.> Length of credit history (15%): This is where things start to get fuzzy. This is a component of the new FICO '08 standard which has yet to be embraced universally. Although it has been proven to be a very good risk predictor, many credit card lending banks weigh this as of lesser importance then their own tweaks. So, this may or may not help a person get a new credit card account with good terms. You may have to change your zipcode or spend less on cat food. Over time, however, it is expected to be more fully accepted as the economy improves. So, hang on those old credit cards and keep them active by using each at least once every five months (these accounts are the most likely to be closed for non-use).
> New credit (10%): In general, new credit card accounts won’t help your score at first. The added credit availability is usually offset by the 'hard hit' your credit report logs up every time you apply for a new account. As they mature, however, they can help you more and more as time goes by. Though hardly noticed yet, the new FICO '08 rules call for an increase in your score just for making your payments on time (as they should).
> Types of credit used (10%): Lastly, the industry is honing in to greater detail as to what kind of credit a consumer holds. Different types are weighted differently now. Lines of credit, department store private labels and smaller credit unions fall into the lesser category. There are many reasons for this but one of the primary reasons is reportability. Most of these entities do not take the time to update credit reports. Therefore, from a risk standpoint, there simply isn’t enough background information provided to weigh it reliably. On the other hand, car loans, student loans and home loans are tracked and followed more responsibly and are given more weight.