Not only has the credit crunch made it more difficult to obtain practically all types of credit, but Fair Isaac, developer of the well-known FICO score, has also announced the biggest change to their credit scoring model since 1989. So, prepare yourself now, because it will be more important than ever in 2009 to understand how everyday financial decisions will affect your credit score.
Who is Using New FICO
Equifax and TransUnion are on track to implement the new FICO scoring model by late spring. Of course, it’s too early to tell how many lenders will start using the new model right away. It could be several months or even 2010 before many make the switch. It’s also too early to really understand how it will affect the average consumer, but Fair Isaac has estimated that 40% to 50% of borrowers’ credit scores could go up or down by 20 points. Here’s a brief list I compiled of the three major changes that may help or hurt you.
- Piggybacking will live on, but it will become a longer and harder path to establishing credit
- A single late payment will not be as damaging as it was in the past. The new model will look at how often borrowers are late with payments and categorize them into 12 different groups
- Amount of balances carried will be more important than how many accounts a borrower has open. Those trying to repair debt and who owe money month to month will be much harder hit
Twenty points can be the difference between getting approved or denied for a personal or home loan in this lending market, so keep a close eye on how these changes affect your credit score in the coming months. Have you seen any changes to your credit score already? If so, post a reply below and let us know.
Comments
Hello: I came to this website trying to learn why my FICO had changed so dramatically in the last month or two.
To make a long story short, my credit was trashed after I had to resign a good job to care for my 4 children during a divorce. This resignation was in 1995, when my credit score was in the 830 range. After slowly going broke as a part-time independent consultant and full-time parent, I defaulted on 3-4 credit card accounts and an unsecured LOC in 1998 after major surgery while insured, but with significant co-pays. I should have declared bankruptcy, but didn't.
Fast forward to three years ago after dealing with years of collections, when I was finally able to secure a decent full-time job earning a reasonable living. Over the last 3 years I began to rebuild my credit score with a couple of credit cards and one installment debt, with no late payments. My credit score had improved from the low 500's to about 640.
Beginning in December with Experian, then in January with Transunion, my score suddenly jumped from the 630-640 range to almost 770, in the range of very good to excellent credit.
My thought was there must have been a change in the scoring at the first of the year, but I'm not seeing anything that looks like it was effective yet. Any idea why my score has jumped nearly 130-140 points?
Hi Rick: Thanks for your post. It sounds like you've gone through a lot over the last 14 years, and I'm glad to hear you've seen such positive results in your credit repair efforts.
A FICO score of 770 is excellent, and a jump of well over 100 points is huge. I've heard several stories now of individuals like you that have seen big changes during the month of January. It's tough to guess exactly why without knowing all the details, but the new FICO score really shouldn't be driving these changes yet. Did you have any of your old collections completely drop off your credit report?
Added to my RSS, Thanks!