5 Changes to Fico Credit Scores

FICO credit scores have changed, which may help or hurt borrowers depending on certain scoring factors. Up to 50% of applicants for a mortgage or other type of loan could see their credit scores move up or down by 20 points or more. Here are 5 new credit score changes:

1.  Amount of Available Credit

The ratio of account balance to the amount of credit available appears to have more influence on the FICO credit score formula. The less available credit a borrower has on credit cards, the lower the score would be. More available credit would mean a better score. This change could have a broad impact on credit scores used by lenders to qualifying borrowers, if credit card issuers implement more cuts on their maximum limits. A borrower’s FICO credit score may drop if the available credit limit is reduced, whether an account has a balance or not. 

2.  Number of Open Accounts

It used to be that having too many open credit card accounts was viewed as a negative factor. However, it appears that has been reversed, provided that the accounts have not been delinquent or overused. Now, having more open and active accounts could have a positive effect on FICO credit scores under the new scoring system. A potential negative aspect of this change is that more credit card issuers may close seldom used consumer accounts.

3.  Isolated Credit Issues

The new FICO credit score model will apparently be more forgiving to borrowers who only have one major negative problem on their credit report. The scoring model calculates the severity and frequency of negative credit items. Depending on the item reported, isolated problems will have less impact on credit scores, as opposed to continuous and recurring late payments and delinquencies.  The potential upside is that good borrowers should not be lumped into a category with repeat credit offenders.

4.  Small Collection Accounts

Collection accounts with an original amount of less than $100 are disregarded. Another positive benefit for borrowers with minor debts owed from parking tickets, unpaid library fines, small medical bills, or other disagreements. Infractions like these should no longer affect FICO credit scores.

5.  Authorized User Credit

The previous FICO credit score model allowed for authorized users on credit card accounts to build a positive credit profile without being the primary card holder. While some authorized user data is allowed, the new formula has reduced the ability to build credit based on this method.

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