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.
