FICO 08 What Does This Mean To Your Credit Score

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.

• 5 steps to a better more accurate credit score Often times I get asked how do I raise my credit score, now of course the answer may not be the same for every individual circumstance. Although the basic four rules apply to assist in keeping your credit scores in their best possible. score. Number 1 rule of thumb is......
• Low and no interest capital for investment purposes When it comes to the value of your dollars in today's economy or any other time your ability to purchase, return income on your investment has been something that eluded many would be great entrepreneurs and investors. The lack of resources to keep the fire slowly going while your momentum......
• How to obtain credit in a down market Yes you can obtain credit in a down market with the proper mindset, motivation, and knowledge. Where do you start especially if you need to acquire it fast and you don't have many resources. This is a quick guide to preparing for the individual or the corporate credit seeker. If......
• Staying Cheerful with the Credit Crunch Businesses and consumers alike can’t keep their lines of credit from shriveling up to nil with the belt tightening across all financial markets. However there are things to be done when the going gets tough. First rule of engagement get going it sounds silly but true when it gets......
• Recovering from bankruptcy isn't as difficult as you may think I hear this cry from many people worried about their financial circumstances after they have decided that bankruptcy is their only alternative when it comes to recovering from financial hardship. I'm not an attorney yet I work very closely with them in my real estate business. On many occasions bankruptcy......

• 6 Easy Tips on Raising Your FICO Score In today’s world, it’s easy to define your self worth by your FICO score. Whether you are trying to buy a house, get more credit or just get back on the right track, a low FICO score can really impact your entire life. However, there are some easy steps that......
• Analyzing our credit scores We refinanced our house several months back to get a lower rate, which meant that the new mortgage holder eventually sent us a copy of our credit scores. So, I can now say that as of 7 months ago, our credit scores were in great shape. (I see no point......
• Another Case For Emergency Savings - Credit Score You know you need emergency savings right? Should something come up where you need money quick you want to have emergency savings handy to help take care of the situation.  Well here's another aspect to think about: You need emergency savings to protect your credit score! An emergency comes up. ......
• How to Get a Free Credit Report without Getting Signed Up for Monthly Services Although the Free Credit Report.com band has done a great job of getting us to remember their product, there’s one thing that FreeCreditReport.com won’t give you, a no-strings-attached free credit report. When getting a free credit report from FreeCreditReport.com, the fine print you agree to signs you up for their......
• The Anatomy of My Credit Score Two weeks ago Equifax was offering a free credit score for the first 10,000 applicants. Fortunately for me I was able to take advantage of this offer. It was very interesting to see my credit score as I was closing on my condo that same week. Equifax calculated my credit......