FICO 08 Credit Scores Has Changed

The way consumer credit scores are calculated has changed. The Fair Isaac Corp. has a new scoring model for determining credit scores, dubbed FICO 08. FICO scores – which range from 300 to 850, with higher scores being better – are based on consumers’ credit histories and reveal their risk for defaulting on loans. A good credit score is anything higher than 700. The new formula is more forgiving of minor issues. The good news is that the Fair Isaac Corp. predicts that more people will see their score increase than decrease. In calculating scores they take into consideration factors such as a person’s financial history including indebtedness, length of credit history, and number of open lines of credit. The difference with FICO 08 is the weight these factors will carry. Some of the changes include Debts less than $100 will not have as large a negative impact. There is a more comprehensive look at a credit history; one negative will not destroy their credit rating. There are new restrictions on Piggybacking. Piggybacking is when a credit card holder with good credit let’s another person, perhaps with lousy or no credit, be an authorized user of the card. The good credit of the card holder would then have a positive impact on the other user’s credit. In order to reduce fraud associated with piggybacking, FICO 08 restricts piggybacking to only the card holder’s family. If a consumer had a history of using most of his or her available credit, it had a negative impact on their score; now that impact will be even larger. Other new bad things are having too few open accounts, a number of inactive accounts or closing accounts will have a more significant negative impact. Having varied lines of credit is a plus a mortgage, a car loan, or school loans in addition to credit cards will have a positive affect on a credit score.

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