February 12,2009
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News: Improve Your Credit Score w/New FICO Rules.
Fair Isaac Corp has just released a new set of credit card scoring guidelines called "FICO '08". Given it's name by plans to have released it last year, the new rules bring about a more fair system for credit card consumers. But, as many things have changed, many credit card holders will not enjoy its benefits if they don't know what they are.
So, here is a rundown of those credit card changes and how to take best advantage of the more fair system. The changes reflect not only changes in ‘weighting' (emphasis of importance), but also lose outdated categories while introducing some new ones. The credit card scoring range is unchanged from the old one (300 to 850). Creditworthiness will be now be based on the new mathematical formulae for ‘weighing' each of these categories. Let's start by listing these changes, then examine the opportunities that each presents:
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Consumer Credit history: (More attuned to look at patterns);
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Consumer Credit Utilization: (Amount of credit card debt vs. total amount available);
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Number of Late Payments: (penalty for occasional slip-ups has been greatly eased); o Number of On-time Payments: (No longer considered minimum, now consistency builds your credit score);
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The Nature of the Payments: (Much more fair. If already in default, how badly, etc.);
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Other Miscellaneous Variables.
Today, everyone knows that our credit card industry is in deep trouble. Most people also realize that the ‘little consumer' feels singled out to pay for the ‘sins of other people' and feels cheated by the unfairness of it all. But, many do not realize how most of these decisions are made.
Basically, they all start with the FICO Score. Running from 300 to 850, the credit card industry adjusts the windows within this range to categorize: High Risk; OK Risk; and Low Risk. Last year, ‘High Risk' windowed between 300 and 600. ‘OK Risk was between 600 and 700‘, while ‘Low Risk' (the best) were above 700. Today, all these windows have shifted up the scale by about 50 FICO points and are still on the rise.
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