FICO Changes for 2008

Fair Isaac Corporation has announced that it will be changing the FICO credit scoring model. The new model, FICO '08, will make it easier on some and harder on others. What's happening? Here are a few of the changes and how they may affect you:

• Occasional Late Payments Not Such a Big Deal - Basically, if you always pay your bill on time and once or twice the check actually does get lost in the mail, or you really thought it was due next week, you won't get hit so hard. That doesn't mean to pretend the due date is whenever you feel like it, you still have to pay your bill on time most of the time, otherwise you're not going to benefit from this little perk. The word around the water cooler is that Fair Isaac is really trying to figure out who is most likely to stop paying.
• You're Gonna Pay for Paying Late - As mentioned above, you need to pay your bills on time most of the time (really you want to be on time all of the time, but nobody's perfect). If you pay your bills late on a monthly basis, expect your score to get worse than it was before. With the onset of this new scoring model you will be penalized for constantly being late. BUT you can make it better! How? Start paying your bills early consistently. You're have to pay them sooner or later; start aiming for sooner.
• Being an Authorized Users Won't Help Your Score - There were people profiting from other people's poor credit. How? John Doe charged Jane Doe up to $1,000 to add her onto his account to improve her credit scores. Because of situations like that, authorized user accounts (where the authorized user is not legally responsible for the charges to the account) will no longer help boost credit scores. Also, it's possible that being an authorized user could actually lower your score. While it's yet to be shown, I would think that if the majority of your credit is through someone else’s credit, your score will reflect that.
• Variety is the Spice of Life (and now credit) - You know how when you use the same insurance company for your car(s), house, & life insurance they give you discount after discount? Well, the new scoring model is taking a similar approach, however instead of discounts, Fair Isaacs will use the variety of your credit to improve your credit score. Having 10 consumer credit cards isn't going to help you much (beyond potentially helping your debt to available credit ratio). What will help raise that score is having varied types of credit: your credit cards, a car loan, a mortgage...but be sure to pay your bills or having a million different types of credit won't do you any good!

Lenders across the board (from mortgages to credit cards) are more sensitive to risk right now and Fair Isaac is trying to help correct that. With other credit score models coming out, Fair Isaac wants to keep the FICO model on top of the market place. Expect to see the low scores go lower and high scores, higher. By providing lenders (those who lend you money/credit) with a more accurate credit score (through a more accurate scoring model), the lenders will loosen their clenched fists. By using & managing your credit responsibly, you demonstrate to the lenders that you pay back loans and they'll be that much more likely to give you a loan the next time you need it. If your credit is good, keep it good. If it's not so good, now is the time to start working toward making it better.