For What It's Worth
FICO Scores Get a Makeover
By Anthony Catalano
Fri, 06 Feb 2009 20:16:53 GMT
Just when you thought it was safe to close that old credit-card account... Fair Isaac & Co., the company behind the FICO scores that are a ubiquitous yardstick of creditworthiness in the lending industry and beyond, is rolling out some changes.As Jane Kim reports in The Wall Street Journal, these changes will take months, if not years, to trickle down to the point where they have any meaningful impact on consumers.
Just this week Trans Union, one of the major credit-reporting bureaus, first announced that it is making the new scores, dubbed FICO 08, available to lenders. It is unclear when the other major bureaus (Experian and Equifax) will start offering the new scores—and until all three do so, chances are that most lenders will continue to opt for the standard FICO scores they know and love.
Although you won't feel the impact of FICO 08 for quite some time, it can't hurt to know the facts and be prepared. So here's a quick roundup of what's said to be changing (the actual formula is proprietary):
1. Maxing out your cards will cost you. And not just via exorbitant interest payments and over-the-limit fees. Experts suggest that with the new formula it will be more important than ever to keep your outstanding balance at around 30 percent of your total credit limit.
2. Collections less than $100 will be completely ignored. The fine for that Richard Simmons tape you never got around to returning won't prevent you from getting a mortgage.
3. Single transgressions will be forgiven. One gigantic slip-up won't bring you down if your credit history is pristine otherwise.
4. Good genes will be rewarded. You can't choose your family… but you can take advantage of their good credit. Through the practice known as "piggybacking," you will now be able to boost your own score simply by riding the coattails of a parent or spouse as an authorized user on his or her account.
One plus: The score range will remain 300 - 850, so this change won't be nearly as disorienting as when the College Board decided to "re-center" SAT scores in the mid-'90s. In this new world of credit-risk assessment you'll still need to shoot for a number in the mid 700s—at a minimum—to ensure yourself of approval and the best rates.
If you're a glutton for punishment and want even more information about FICO 08, check out Fair Isaac's newsletter.
What do you think of these changes? Tell us if this news will make you monitor your credit more closely.
Message Edited by Anthony_Catalano on 02-06-2009 03:29 PM
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CREDIT SCORES are a 'joke' A BIG 'JOKE' !!! for someone who started out with good credit and current with all of their monthly bills 'payments' ? Seems if you are up to your eye 'balls' in debt & behind in your monthly payments you are a prime (suspect) Prospect for a hugh loan with castostropic interest % !!! Or a Foreign Coutry for billions that never, ever pay back the "LOANS ? " makes YOU WONDER ? the Banking & Loan Industry are on an other PLANT/ x: Citibank, "Chase Manhatten, JP Morgan" goes on & on? The FIRST step to bankruptcy? but not a word??? to the solution ? Comes to mind the first rule of good Business is iiss iiisss? a solid foundation to build on ! common sense business practices & honest folk running the Business? and LORD knows all will fall into place!!! The Government is BIG Business where are the practical , honest business orientated folk disappeared to??? CONTINUED BAD SPENDING PRACTICES have led US DOWN THE PRIMROSE PATH that is not so rosy now, are they? PS OVER LOOKED THE CONTINUED sending of $$$$$$$$$$$'s being doled out to the so called 3rd rate WORLD countries, that really DISPISE US & WOULD LIKE TO SEE all Americans " BUSH WHACKED whether 'YOU' want to believe IT or NOT! Their GOVERNMENTS have been playing games with THEIR OWN PEOPLE????? I do believe WASHINGTON D. D. has picked-up on the same GAME plan!!! I GUESS THATS ALL FOLKS STIMULOUS " INdebtedness " into the next millinium! GOOD OR BAD CREDIT SCORESMon, 09 Feb 2009 11:22:55 GMT | forgitet
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With declining mail being sent, how can the postal service continue to hire. They are also wanting to deliver mail 1 less day a week, which is ok with me, but again, how can they continue to hire without laying off people?? makes no sense, perhaps needing some investigation...Wed, 11 Feb 2009 14:12:26 GMT | carolls
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WOW - I wondered how Fair Isaacs would deal with this Financial mess of foreclosures and rampant neglect of creditees to pay back what they had stolen from not only businesses but the creditor who gave them the loan to purchases what they wanted and did not need. EGADS to think that a person who actually budgeted themselves, knew that not every garage required a pimped out car, and that every kitchen didn't need a remodel to be the glory of the neighborhood, and didn't buy their kid EVERY needless mindless game system would now stand equally with a louse.Not collecting on small balance will forever confuse the student card holder. They already say that when buying those 20 pizzas for the party they never knew they when they received the credit card bill a month later that it meant it was time to pay for what you ate a month ago. If they don't learn the lessons then - how will they understand it when their car is being repossessed or when they don't understand why they don't qualify for a house. Oh - don't worry, because now they have their parents good credit to 'not learn from'.
Fri, 13 Feb 2009 16:54:35 GMT | XCaliPatriot
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This whole CREDIT SCORES system is a scam. They have n0 idea of your net worth (how much money you make or how much you have in savings, retirement, 401K, etc.)! If your net income is over $100,00.00 and you pay for almost everything cash but you have two credit cards with a line of credit of $2000.oo each but have $700.00 charged on it (35%), you get a low credit score. But a person who makes $20,00.oo and has the same 2 cards with the same line of credit but only has only $599.99 (30%) charged on both cards, will have a higher score.Also how about banks that get in trouble and lower the credit limit. That is happening to people, CITI Bank and GE Money Bank, both of who are about to go under have cut the lines of credit on credit cards. Say you had a line of credit of $ 2000.00 and owed $500. 00 (25% if limit well with in the 30%). CITI Bank cuts your limit to $1000.00, now your $500.00 is at 50% and you get your score lowered. And the bad part is some of these banks don't even tell you this. And if your credit score lowers other banks will start charging higher intrest rates and cut their credit limit on your cards.
What kind of deal is linking to your family have to do with my credit? My parents are retired and owe nothing pay cash for everything or pay off their cards the first of each month. Say I pay all my bills on time and even pay more that what the payment is each month. My kids don't pay their bills on time and this will lower my credit score. How fair is this to me?
How about this one, each time someone check your credit the reporting companies keep track and they count that against your score. All those free offers that say "pre- approived fo $xxxxx.xx" they will cost you even if you did not apply or ask for the loan. Business you buy from, banks, credit card companies, etc,. all pass that information around. And guess what those same companies that are giving out that information up your intrest rate when score goes down.
WHAT NEEDS TO HAPPEN IS THAT THE CREDIT REPORTING COMPANIES NEED TO HAVE GUIDE LINES THAT ARE FAIR TO ALL. THE GOVERNMENT HAS NEWS LAWS THAT WILL GO INTO EFFECT IN 2010. WHICH WAS TO MAKE THE CREDIT REPORTING COMPANIES BE HONEST. BUT I SEE THIS WILL NOT HAPPEN.
I GUESS WHAT WE NEED IS FOR A LAWYER TO FILE A CLASS ACTION LAWSUIT ON ALL OF OUR BEHALF AGAINST THE CREDIT REPORTING COMPANIES FOR SLANDER AND THEN MAYBE THEY WOULD GET IT RIGHT!!! SEEMS THE ONLY THING BIG COMPANIES UNDERSTAND IS IF COST THEM THEY DON"T CARE ABOUT THE REST OF US.
I ask that each of you who reads this contact your congressman or woman and complain about how the credit reporting compaines are hurting you with things you have no control over, and for laws that require them to be accountable for their actions.
Thanks
Sun, 15 Feb 2009 14:17:56 GMT | Vandpool
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More evidence that FICO scores continue to fail our economic system. Can anyone tell me why the so called Fair Isaac chose to rate those who declared bankruptcy at higher levels than those who instead elected to pay bills, albeit late? Can anyone explain the mathematical model that allots 840 scoring points to the FICO system,yet uses a bizarre distribution that appears designed to eliminate fair reporting, instead squeezing the ratings in a headlong rush to stamp "poor" on credit reports?
Look at the distribution carefully and you can't help but see the point I am making: the first 11% considered excellent; the second 11% considered good; the next 6% is what remains for a so called "Fair" rating; the bottom 72% is considered poor or worse. What criteria is being used to establish this distribution? Perhaps when our so called economic experts look at the challenges of these times, they should look at how these skewed FICO scores have in their turn adversely affected decision making and behavior in the marketplace, perhaps falsely encouraging much lousy lending, while not supporting lending in other cases where well justified, but not considered due to this failed scoring system and the even worse behavior of credit reporting agencies that can't overcome the conflicts of interest created by their associated services, designed for those who need credit help and thus we find them most begrudging when it comes to challenges to false and innaccurate reports. I can speak frankly on this as my score is in the low to mid 600's, depsite the fact I pay my bills and honor my debts, yet even 7 years after a divorce and the troubles that created for my credit, I still can not get credit. My asnwer will continue to be cash. Cash is what I preach now and how I live and I hope others will follow and leave a gaping hole in the economy where predatory lending once thrived. I for one can live most happily without more bank bailouts for those who are quick to punish when they perceive imperfection, yet can't take their own medicine when they fail to do the right thing.
Milo Mindbender
Wed, 18 Feb 2009 16:30:32 GMT | mindbender
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OK, any rating system built on statistics and ratios has to have rules, like the 30% guideline on credit cards. BUT, the system should have some methodology to make common sense of the ratios. 10 years ago I was disabled & had two major surgeries, credit tanked to the 500 range. Now my wife and I earn almost $250K between us, I have two small cards, pay cash for everything, including a $20K car, and had a 770 score. Last month I charged a nice dinner to the smaller card, my score decreased by 35 points over a $200 dinner, which I paid off 5 days after the statement date. I guess it's my fault for not trying to get several cards and seek big limits.My other complaint is that the 3 agencies don't look at what's reported to the other agencies. I have a real estate loan on some vacation property with a perfect payment history, but it's only reported to one agency, so it does me no good with the other two agencies. SO STUPID!!
Wed, 18 Feb 2009 23:07:54 GMT | Ricksroses
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Please don't worry about this. Obama will fix it allTue, 24 Feb 2009 17:25:27 GMT | hotshif
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The credit bureaus are a total sham. They do not take in to account your income and savings. If you have no late payments that should be the one thing that determines your score. Before we had "scores" that's how everyone was evaluated..income & payment history. Debt to income ratio..much better test than this system that allows credit cards to raise your rates based on what they think...not how you pay. Or punish you becasue they ran their business poorly so "let's reduce your credit". I predict this will end up being one of the key causes of the housing & mortgage failures in the US.Tue, 24 Feb 2009 19:52:49 GMT | enolan
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I see Credit Card Companies like CapitalOne raising their interest rates to astronomical proportions which will lose them consumers!! I'm paying them off and shredding the card and THEN I'll call and close my account BEFORE the ultimatim they sent out to their consumers! So they lose a customer. Most of my revolving accounts are gas cards which I use when I'm traveling and I pay the FULL amount at the end of the year.Does anyone know what the STATUTES of Limitations are for each state? That alone may help many people wipe out debt!! Does this mean I can pay off my accounts but keep them open? Or that if I pay them off the banks will close out the account?
Tue, 24 Feb 2009 21:35:31 GMT | grannypickles
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I agree these banks are getting ridiculous. Why are we going to give more money to the greedy???? It makes no sense.Let's all band together and write our congressmen and the president. You can go to www.whitehouse.gov . I wrote to the president & my congressmen on this issue and in all on the economy and I will continue to write them until I get the response I am looking for. It is going to take all of us.....to make our country a place to be proud of again.
Tue, 24 Feb 2009 22:05:46 GMT | michel8wall
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While the items I read with genuine gladness about the altruistic and philanthropic ideas of forgiveness/not lowering one's credit score due to a late payment report, or a major credit report-related mess up, that would have otherwise resulted in being denied credit, denied employment, etc., under the previous credit score/reporting system, I cannot conscience the idea of making it a mark against anyone to "max-out" their card limits, especially in the current economic/unemployment crises, as well as beyond the point that we recover from this recession, and onward.Such an idea serves to hinder and curtail consumer spending, and that is an exceptionally bad thing for the economy.
The credit card companies get more income from interest payments with higher balances, helping them to keep credit flowing, which in turn keeps the economy moving, and so in better shape overall.
Further, again, especially in the current economic/unemployment crises, many millions of people are finding themselves forced to rely on their credit cards just to scrape by and try to forestall, if not avert, being evicted/losing their homes, having their power shut off, be able to pay for basics like food, prescriptions and other essential medical care not otherwise covered, etc., to continue to support themselves and their children.
In addition, credit card companies offer zero-APR balance-transfer cards to move one's balances to to keep from paying the interest that’s accruing on their existing interest-bearing cards, thus reducing what they must pay back in the end, by eliminating, or at least reducing, the added amounts in interest payments. Such cards make it MORE likely consumers will be able to pay their cards back, instead of defaulting/declaring bankruptcy, thereby leaving credit card companies with nothing. Such cards are designed to transfer as much of one's other card balances to as will "fit" into the maximum limits of these zero-balance cards - to deliberately “max” them out - to help consumers. To penalize people by making it a mark against their credit status/score to have credit cards with balances higher than a mere 30% is unthinkable, not only in the current recession, but ever, especially when zero-APR balance transfer cards exist to take on other card balances to help consumers pay them off.
Make all credit, and all credit cards, HELPFUL to everyone - not only as millions are losing their jobs, and so their incomes, as well as the roofs over their heads, etc., EVERY DAY in this recession - but always.
All businesses need to be customer-friendly and compassionate as consumers struggle, and many are losing out, since as this happens to them, it hurts businesses in the end, and so is counter to businesses’, and the economy’s, best interests. So, do not add to everyone's woes by creating penalties to simply USE the credit cards at our disposal, regardless of how high their balances are, or are not! Leave their balances to us as being our business, and remain crystal clear that it is consumer spending that keeps investor confidence - and therefore the stock market - up, and keeps the economy moving and flowing, instead of hindering it. That is good for everyone, during this recession, and always.
Message Edited by brianko722 on 02-24-2009 05:52 PM
Tue, 24 Feb 2009 22:42:46 GMT | brianko722
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All the more reason to pay cash for everything. If you don't have the funds to pay for something, don't buy it!! If you save up to by that car or house just think of the power that you can weld in the finance world. No doubt very little risk.Thu, 05 Mar 2009 18:07:56 GMT | Mr_Ribeye
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Paying off and closing accounts should be rewarded. That info is still listed on your credit files and should make you look responsible and not get a score lowered if you close them. Why keep opened unwanted accounts!!! The FICO system is unfair and nuts!Fri, 13 Mar 2009 01:04:43 GMT | Pooky