New FICO Credit Score Formula To Take Effect In 2009

Image: Veer

First thing’s first, do you know your credit score? If not, the government allows you to view your credit report for no charge once a year. Do NOT be fooled by other websites that claim to offer “free” reports, like Free Credit Report Dot Com (you’ll recognize them by the annoying commercials).

You can view your free report at Annual Credit Report Dot Com.

In 2009 a new score formula will take effect, potentially impacting consumer scores negatively.  However, the new formula is expected to more accurately predict defaults.

“Fair Isaac says the new score will do a better job of predicting defaults than the classic FICO, which is used in more than 75% of mortgage lending decisions and by 90% of the largest U.S. lenders.”

Source: MSN Money

The biggest change that could potentially lower your score is the formula’s sensitivity to available credit.  Because creditors are both closing old, unused accounts and slashing credit limits, this could lower your score in a big way.  The other changes are as follows:

  • Small collection amounts will not impact your score as they did previously.
  • Credit setbacks, such as a repossession, will not have as large an impact if your other active accounts are in good standing.
  • Authorized User accounts will now be ignored.

MSN Money recommends the following to ensure your credit score remains as high as possible:

  • Apply for new credit sparingly.
  • Do not close accounts.
  • Keep balances low (or, at the very least, do not allow those balances to grow).
  • Keep accounts active.
  • Consider an installment loan – they are categorized differently by FICO.  Although, this may be difficult given the current credit squeeze.

The gist?  It’s looking like the changes won’t impact most people.  Others, such as myself, will likely see a drop in their scores.

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4 Responses to “New FICO Credit Score Formula To Take Effect In 2009”

  1. nenasadije Says:

    about those “authorized user accounts”, yeah. i got fucked pretty good when my mother died and i called the credit card we had together (i was an “authorized user”) a month after and tried to cancel it thinking they’d wipe out the debt like her other cards…sadly, no. i was strapped with a 10k bill (half of which was mine, yes) on a 20k credit line that they closed. as a student it took me about five years to pay it off. FU B of A.

    needless to say, i’m glad to see the new rules.

    and i love your blog, btw.

    best,
    proud jezebel

  2. Solangel Says:

    While I have about $9000 worth of debt that I am also working on paying off, I have always been proud of myself for my excellent credit score. I was aware of most of the things that impact ones credit score, but I was kinda surprised about the authorized user one. I am glad that one is changing. And I can’t wait when the new credit card company regulations go into effect in 2010. I paid one card late once a few months ago (I paid twice in one statement cycle instead of waiting a few days for the new statement to come out. When it was time to pay it, I thought I already had) and they jacked my apr to 29.99%. It’s killing me right now.

  3. pennyplastic Says:

    Same. I’ve always had a decent credit score. The moment it’s at around 730, I believe. Not fabulous, but decent. I was also screwed with a high APR after missing a payment during the holidays. Some readers did suggest calling in 6 months of paying on time to get the rate lowered……

    nenasadije – Thanks for stopping by and having a look at the blog :-) I am so sorry to hear about your mom and what you went through with that debt. B of A is also on my Shit List.

  4. jennie Says:

    You may need to improve your score for 700+ if you need to getting loans, mortgages. This will effect to credit report which can request for free as term freeannualcreditreport if you have a bad score this may cause some difficult on finances request.

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