FICO/Credit Score Changes

Real Estate Agent with Innovative Real Estate Group

Did you know the following?

There are some important changes to the FICO credit scoring model  that will affect your credit scores

The three credit bureaus (Equifax, TransUnion, and Experian) should be implementing the new FICO 08 model sometime around this spring or summer.  They are running late from '08.

Changes to be aware of:

Positive: The new model will ignore small collections under $100. Things such as library fines, parking tickets and those extremely frustrating small medical bills used to appear on credit reports causing incredible damage to scores. With the new model, any of these under $100 will still show up on the report but they will no longer be factored into the scores.  The new formula will include some authorized user accounts. Adding a spouse or child to a credit card will still benefit them.

The Not So Positive: Closing accounts will hurt your score (but that's always been the case). If you have more closed accounts then open accounts you could see a significant decline in your credit score. Use your accounts to keep them active. Charge a tank of gas or any small item and then pay it off.

The FICO 08  model also puts more emphasis on a mix of credit, revolving and installment loans. If you have only credit cards your score will be lower than someone who also has some sort of installment loan, like a mortgage or auto loan.  (Now is an incredible time to buy a home for so many reasons... I never imagined that improving your credit score would be one of them. But hey, it's great!)

The Negative: High balances on credit cards have always been an issue and now they will carry even more weight. It used to be that keeping a balance below 50% of the high credit limit was good and below 30% was great. With the new model, below 30% is good and below 10% is great. With so many credit card companies feeling the credit crunch, some of them are decreasing credit limits - sometimes as much as by 50%, which could be detrimental to a credit score because it could portray the idea that you are close to your limit.

What are your thoughts on these new changes?

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