The Denver Metro Area Real Estate Blog

New Credit Scoring Models to Be Implemented This Year

This is from trusted lender Brett Popish at 303-668-5891 www.greencofinancial.com...

A long delayed update to the credit scoring model is going to be implemented soon and it may affect the way your FICO scores are calculated.  FICO 08 is the new version that will take place of the old FICO model and it contains changes on how the three credit bureaus look at credit and score an individual.  Trans Union will offer the new scoring model in late January while Equifax is expected to introduce it in late spring and Experian hasn’t yet announced when it will offer it.

Under the new FICO 08 model, available credit limits on credit cards and the amount of open accounts will matter more than ever!  Those keeping high balances to limit ratios will see a tremendous decrease in credit scores along with those whose credit card holders slash credit limits (which is common during these turbulent financial times).  New reports suggest maintaining no higher than a 30% balance to limit ratio and preferably no more than 10%.  If you’re carrying a balance above this, it’s a good idea to ask for an increase in your credit line or simply use a couple credit cards to keep all balances in line.  If you’re one of those who uses their credit card for all purchases and pay the card off at the end of the month, make sure the balance you pay off at the end of the month is within the same ratio.  Typically, the balance that is reported to the credit bureaus is the one that shows up on the monthly statement.  If your credit issuer slashes your limit, ask for the decision to be rescinded.  If not, you will definitely see your FICO score decrease as a result.

However, not all news is bad.  The new model is very forgiving with minor credit mis-steps.  Collections, for instance, are ignored if the original debt was less than $100.  This is great for consumers with those nagging unpaid library fines or small medical bills that slipped through the cracks of the insurance company or doctor’s office.  Other credit issues such as charge-offs or repossessions will be less punishing as long as the current active credit is in good standing.

Your credit score is more important now than ever.  Creditors are looking to extend credit to the most responsible and deserving individuals…BE ONE OF THEM!