I found this article posted by National Home Loan Advocates. I find this to be critical to your success in building a solid understanding around credit and tyhe importance it plays in your future. Enjoy your read and keep htis article bookmarked for safe retrieval on your desktop.

FICO 08 – National Home Loan Advocates LLC – FICO 08 and Your Credit Score

Fair Isaac recently announced plans to change its credit scoring formula to ensure the continued reliability and predictive powers of FICO scores. The new model, named “FICO 08″ has been making its way into the credit scoring process since late 2008. The model replaces the existing FICO model, which has remained relatively unchanged since the 1980s.

Essentially, FICO 08 will be more forgiving to periodic late payments as long as other credit remains strong, and will have a bigger negative impact on your score if you have multiple late payment accounts.

Calculating FICO Scores

A quick summary on the FICO scoring model calculates creditworthiness based on information in five dimensions:

* Payment History (35% of score) – account payment information for credit cards, lenders, and retailers. Used to measure your ability to pay your bills on time.
* Amounts Owed (30% of score) – the total amount of credit you have outstanding relative to the maximum amount creditors are willing to extend to you.
* Length of Credit History (15% of score) – a measure of the length of time your accounts have been open with creditors and lenders.
* New Credit (10% of score) – the number of times you’ve applied for credit in the recent past.
* Types of Credit (10% of score) – this is the diversity of credit you have in your portfolio.

Changes Planned in FICO 08

The primary reason for the switch to FICO 08 had do with the forecasting powers of the new model. Fair Isaac believes that FICO 08 will do a better job at predicting the likelihood of default on a loan by making two changes to its existing model:

* Authorized Users – An authorized user is a person that is permitted by another account holder to use their account. Normally, this situation applies to a family member who is trying to manage credit for the first time, such as a college student. The new scoring model eliminates “piggybacking” which allowed individuals with bad credit to leverage the payment histories of “stronger” credit card holders by becoming an authorized user on their accounts.
* Delinquencies – The second change in the scoring model has to do with payment patterns – especially those that are greater than 90 days late in making a payment. The FICO 08 model will be more forgiving to consumers that are in arrears in one area, but have a number of other accounts that are in good standing.

Fair Isaac predicts the above two changes will reduce the default rates on consumer debt by 5 to 15% for those companies switching to the new model.
Impact of FICO 08 on Credit Scores

Many consumers have been asking:

How will FICO 08 affect my credit score?

Keep in mind that credit scores are used by many lenders to determine the amount of credit to extend a borrower. These creditworthiness thresholds are usually based on predetermined bands of credit scores. To make it easier for lenders to adopt FICO 08, the new scoring model will retain the same numerical range (300 – 850), minimum scoring criteria, and parameters as the prior model.

Credit Score Examples

The following examples help illustrate the rules-of-thumb that apply to FICO 08, and how this model might change individual credit scores:

* If you have at least one major account in delinquency, but you also have a number of accounts in good standing with creditors, then your credit score would likely increase / improve with the new model.
* If you have at least one major account in delinquency, and you demonstrate a poor payment pattern with several other accounts with creditors, then your credit score would likely decrease / deteriorate with the FICO 08 model.

Examples provided by Fair Isaac indicate that consumers might experience a 20 to 25 point adjustment to their credit scores where the above situations apply. As emphasized in other publications, the most effective way to improve your credit score is by ensuring the information used to generate the score is accurate. This includes obtaining a copy of your credit report and looking for errors.

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Sounds funny that your credit card companies and the credit bureaus share some trade secrets that are actually in place to do you more harm than good. For example many credit card companies wil extend you credit even if you can’t really afford it.

When you apply for credit the credit card companies only do a surface check to see if your finances measure up and to check your credit score if you fit in there box you win. A life of debt that you weren’t prepared for.

Debt that seems to grow faster than you can pay it off. Also you win some hidden fine print that states your can make the minimum monthly payment options that include taxes and possible additional charges you were not prepared for.

Next in line is the credit bureaus which were never designed to do anything more than create revenue. These bureaus are a double edged sword, first business that issue credit pay to report your payment and credit obligation repayment This is the first source of revenue.

Secondly these same bureaus who report our financial history also sell our information to other credit issuers to send us more credit offers. This is the second stream of revenue for these giant credit reporting bureaus. Most consumers never realize this and keep on going through life and wondering why this and why that.

Credit is big business and the effect of misuse of credit is dangerous. Just look around to see the negative affects on the economy. We have not seen this type of financial devastation since the great depression of 1929 according to the experts we learn from everyday.

So with this knowledge you can protect yourself by opting out of the marketing lists, using a professional service such as LifeLock to protect your identity and remove you from all of the major marketing channels, removing you from junk mail and opting out. Also LifeLock will place fraud alerts on your credit reports to prevent false issuing of credit to someone other than you.

The main reason we are on these lists is so we can be bombarded by direct marketing companies, credit lenders and other direct sales professions to trigger our impulse in buying. Where else should you get your data from some outside source or the one place that knows your deepest secrets in making purchases.

If you are exposed at your weakest level and the companies who compete are vying for your business than why would I as a marketer want to gather your intelligence from anyone else? I can see where you shop, where you have applied and received credit, where credit was denied and so on.

Take warning that in today’s modern world information is king right up there with cash. Which makes more sense today; robbing one bank or stealing identities and robbing thousands of identities for the same purpose and never leave the comfort of my own living room.

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Chaos is in the air all around us, economic crisis, mortgage industry meltdown, global markets in turmoil and in the midst of change and economic change and recovery action plans another crisis is underway. While our country is amidst change our credit card lenders, mortgage lenders and banking systems are about to undergo yet another change.

Credit laws are changing which means more stringent rules and guidelines for borrowing credit, obtaining loans and setting up both short and long term capital & lines of credit. For you as the general consumer this means acquiring financing for credit will be a monumental undertaking.

Higher credit score requirements, higher capital reserves in the bank. You will be required to work through more “red tape” to get a financial decision. Also laws will change that require lending institutions to perform more due diligence on prospective borrowers.

Not to mention the “credit card industry meltdown” we are about to go through. With consumer spending on credit card purchases soaring, people making the purchases are unable to master the method of keeping current on more than the minimum payment required are falling deeply in debt.

Most people never realize that the plan for credit card companies is to actually keep borrowers in debt for years and years to continue keeping profits rolling as well to continue the compounding interest accruing on your account at rates as high as 19.9% possibly more depending on your credit card companies fine print.

The negative affects far out weight the positive effects when it comes to carrying debt on a credit card. Your costs of the item increases by the annual percentage rates, your credit score is negatively effected by the continued debt you carry every month. Also the costs of additional stress, financial obligations increase every month that the debt is not renewed.

Your wind up paying more than the item costs, the pain of deferring the cost is greater than if you had just purchased the item outright. It’s easy to forget about your obligations when the credit card limits are higher, you have the ability to continually rack up debt on your credit cards, your more inclined to spend less wisely and more often when you have an additional limit of capital at your beck an call.

If you are prone to carrying debt on a credit card you should be aware that when you don’t make regular payments your subject to higher interest rates, additional late fees, and other terms in your individual contractual agreement. If you are buried in credit card debt there are options to get your way out of debt.

Your first option is always to pay your bills on time, secondly if you are too far buried in debt you need to speak with a debt consolidation specialist, “not debt consolidations are created equal.” You also have the ability to file bankruptcy if none of your other plans work to modify or reduce the debt.

You are the closest to your financial circumstances whether you are on top of them or not is a different story. Now more than ever financial responsibility is being shifted onto the consumers shoulder in areas of retirement and financial planning.

It’s always been the consumers responsibility to handle household financial responsibilities, yet many households are lacking in savings, deposits and financial skills to help protect and insure stability and to create a rock solid financial foundation.

If you are lacking in these areas of your life you need to find the assistance, mentor or personal guidance to get your financial affairs in order. Often times as we keep getting busier and busier with our daily lives. We get involved with our personal business, family, career, children and relatives.

We often forget to ensure that the main stability and structure needed are the seen love and caring for ones self and others; yet financial structure isn’t something most Americans seem to spend enough time on actively researching and investing tohedge against future costs. Also not enough time is spent socking away funds to shore up short falls in income.

Savings accounts, Your child’s college funds, short term savings and cash flow investments etc, back up for three to six months of required capital preserves incase of job loss due to injury,layoff or in more recent times businesses going out of business.

Take the time to prepare for your future, make the choice to be proactive in preparation of financial security. You have heard before how social security will not be there to support you when you are older. In these times of budget cutbacks, democratic policy eliminating government programs the reality of the social security system going away are more real and evident than ever.

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You’ve heard the news about the changes in credit scores and the impacts of these changes are yet to unfold. You can rest assured that this is the first step in major changes in banking reform on both the business and deposit account holders end.

Tighter financial requirements on the banks meaning higher reserves, stricter lending guidelines. Banks may possibly have more toxic assets to sort through, also higher credit requirements will be placed on the credit requester (borrower); higher reserves and more documented application and verification procedures.

What you as a consumer and a small business owner needs to know are the facts, your financial report card, A.K.A., your credit report the all knowing all seeing document that portrays the type of financially responsible person you are.

A document built with mathematical algorithmic functions to measure your financial risk, your employable risk, your insurable risk and policy rate, your education funding ability, your overall financial intelligence.

The very document attached to your social security number makes you a verifiable statistic. The way you handle your finances, your obligations to debt, your tolerance and control over risk and investment (investment by means of leveraging credit and outside capital resources (OPM).

To your lien holder prospects, your insurance companies and your outside financial risk takers and debt providers you are a profit center waiting to happen, hopefully you will take on a debt agree to pay for some item consumable or not.

Then you will agree to pay for it over time with interest because of the risk you place on us via our trusting your financial where with all. You the consumer agree and sign the promissory agreement, commence business, and the relationship begins.

Funny; more people will create useless, bad debt in to their lives, for example; young teenagers through grown adults will spend money on a credit card to fill an empty pleasure. Let’s say going to the movies, out to dinner, vacationing, office equipment; anything to fill an emotion of need or emptiness.

Sure these are purchases driven to create happiness, convenience, time freedom, capital acquisition, a temporary solution to fill a basic void. I can make this statement from both personal and professional intelligence.

Let’s say that we use the statistical figure of the 80/20 rule. We know out of the 100 people who spend on their credit cards, 80 of these prospects are spending over their limit, 20 percent are within their tight budget.

Out of the 80% who are over budget 80% of these people at a minimum will have trouble keep up payments and the negative aspects of low credit scores will have an impact dramatically. Possible all 100% will suffer some possibly no negative aspects reflecting on their individuals credit report.

Out of the 20% of the budgeted credit holders 80% of them will stretch out their credit card payments beyond the billing cycles which will report carried debt and weigh negative at he same time depending on the threshold of available debt to current outstanding debt.

The remaining 20% of the debtors will again payoff the credit card debt, bringing their balances down to zero, take advantage of low or no interest rate charges. Their credit scores reflect positively and new lines of credit become available with rewards and benefits.

Now back to the new law changes for credit, we can imagine that we have become a loose spending money grows on trees type of society. The reins are about to tighten up more now than ever before.

You as a consumer need to batten down the hatches and get ready for new changes. As the credit brigade locks down the availability of credit card lending, banks will tighten on all ends, you will need to be a “perfect citizen” to obtain any credit.

Don’t for get that as you know your fico score is your passport to everything from jobs and insurance to borrowing capital; you also have other areas associated with credit, medical, unemployment, investing and assets, drivers license. Your Identity is also a t risk.

Identity theft will hit new heights and hackers have been waiting for this moment for a long time. A full scale security system needs to be waged on your financial affairs to get them in order.

Whether or not you decide to do something now is a choice you’ll ultimately make. My suggestion is to get it done now. Tighten the main sails and batten down the hatches on your financial vessel. Get your credit cleaned up and start to find light at the end of the tunnel. Credit is your key to s bright and rewarding future learn about your exclusive invitation to credit trax within the FDI familyof preferred services

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