Your credit score affects many aspects of your life - whether or not you can get a mortgage loan or credit card, the rate you receive, whether or not a landlord will rent to you, and even whether or not you get certain jobs.
The FICO score, produced by Fair Isaac Corporation, is the credit scoring model most commonly used by creditors.
While the basic factors used in creating your credit score (payment history, level of debt, types of accounts, length of credit history, and variety) will not change, with their updated model, FICO 08. Fair Isaac has made some adjustments in an attempt to better differentiate between people that are good credit risks and bad credit risks.
One major difference between FICO 08 and the previous model is that authorized user accounts will no longer be used in calculating credit scores. (Authorized users are able to use the accounts but are not legally responsible for making payments. Previously, the primary user's payment history on the card was used in calculating the authorized user's score, whether positive or negative.) The change was made to combat a technique used by many credit repair clinics called piggybacking. With this technique, for a fee, people with good credit scores allowed strangers to be added as authorized users to their accounts, thus boosting the authorized users' scores. This reduced the usefulness of the FICO score as a tool for predicting credit risk, since the authorized users' scores instantaneously increased despite not changing their credit habits. While some took advantage of authorized user accounts many people added spouses or children as authorized users to help build their credit score. However, due to privacy laws and the Fair Credit Reporting Act Fair Isaac cannot differentiate between authorized users who are family members to the primary user or strangers.
Another change with FICO 08 is that a greater distinction is made between serial late payers and one-time late payers. People who make a late payment will not be penalized as much as before if they have other accounts in good standing. Conversely, people who are severely or consistently late on multiple accounts will be penalized more than before. Also, more points will be given to people who have a variety of accounts, such as a credit card, store card, and car loan. People who have used a high percentage of their available credit will be penalized more than before.
Are you concerned about your credit score, due to changes in the FICO formula or for other reasons? As a benefit of your membership you have access to BALANCE. A credit report specialist at BALANCE can go over your credit report, explain what everything means, and discuss changes that you can make to improve your score. You can get your credit reports free (once a year) through the Annual Credit Report Request Service (annualcreditreport.com or 877-322-8228), although they will not have the scores, or purchase the reports and scores directly from the credit bureaus and send them to BALANCE for review, for free. (Low-cost reports can also be purchased through BALANCE.) To find out more about the credit report review service or set up an appointment call BALANCE at 888-456-2227 or CLICK HERE.
