New credit scoring system on the horizon for future home buyers- LEAP now or forever hold your peace

New credit scoring system on the horizon for future home buyers- LEAP now or forever hold your peace

fico-08On January 29, 2009 TransUnion rolled out and made available the credit-scoring model called FICO 08. This is the newest version of the FICO® credit score, which is simply a redevelopment of their widely used industry standard classic score. The long awaited release of this model is good news for lenders, low risk borrowers, and those with low credit card balances. Its bad news for piggy backers, companies that sell piggybacking services, consumes with a lot of credit card debt, and the flop of the century, so far, in the credit-scoring world known as Vantage Score.
So what is so different about FICO 08 and the other versions of the FICO score? There are three primary differences of note. They are:

1. Negligible Collection and Public Record Exclusion - The newest FICO score will ignore any collections or public records with an original amount less than $100. It’s important to note that for a collection to be bypassed by the score, thanks to the new logic, it has to be reported as a 3rd party collection agency account and not the collection department of a credit card company. If the collection shows up as “trade” then it will still count against your score even if it is less than $100. And, if the original amount was over $100 but it has been paid down to a current balance of less than $100 it will still count in your score. This is exceptional news for consumers who are haunted by low dollar collections caused by misdirected final utility bills and some insurance snafus.

2. Credit Card Utilization – Credit card utilization, the ratio of your current balances to your current credit limits on revolving credit card accounts, remains a highly important factor in your FICO credit score.
However, in FICO 08 it takes on a whole new level of importance.
Consumers who have balances that approach the reported credit limit will find their scores lower with FICO 08 than with previous versions of the scoring software. FICO’s research has apparently discovered that consumers who are highly utilized with their credit cards are more risky than they were in the past, hence the more punitive treatment.

3. No Piggybacking Allowed – This new version of FICO apparently has the ability to determine if an authorized user credit card account is an attempt to game the credit scoring system through piggybacking, which is the process whereby a consumer with poor credit would pay to be added to the credit card of someone with good credit as an authorized user. Fair Isaac will not disclose how they’re able to tell the difference between a legitimate authorized user account belonging to, say, a husband and wife versus one that has been made it to a credit report through other means, such as piggybacking. You will recall that FICO 08 was originally going to completely ignore all authorized user accounts. This new logic seems to split the difference between ignoring all authorized user relationships and doing nothing to discourage the use of piggybacking services.

The best advice for consumers who will begin to be scored with this new FICO score is for them to continue to do what they’re doing now.
Continue to make all of your payments on time. Continue to work down your credit card balances as much as possible. Continue to apply for credit only when needed. Remember I am here to answer any questions you may have; in the column there is an easy form to fill out if that is more convenient.

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