A new system for determining your credit-worthiness, FICO ’08, rolls out this Thursday, and there’s nothing you can to do stop it. By these 6 changes, ye shall be judged:
1. Spouses and children can improve their credit score by being an authorized user on a credit card account, but that’s it. No more piggybacking off strangers.
2. Debts less than $100 that go to collections will matter less.
3. They will look at the total picture more. A single repossession, for instance, won’t matter as much if everything else looks good.
4. Having less available credit will drag down your score more.
5. Diversity matters more. A mix of healthy auto, personal and student loans would bring up a score.
6. Closing accounts will bring down the score.
Though companies will start using it to make decisions about you right away, it may be months or even years before the scores are commercially available to consumers. So, just like in middle school, they’re quietly judging you behind your back, and no, you can’t see inside the black and white composition notebook.
The good and the bad of the new credit scoring formula [NewsChannel5]
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I got my credit report and my husband’s last month (Thanks to the links provided here) Both of our scores are in the high 700′s, which it is good since we have not need to buy a new home, car or loan to remodel. Anyway, I noticed that one of my husband’s card show a date about 24 years earlier than when he truly opened it. Should I bother fix in this?
“JUDGEMENT” day? Seriously?
(It’s spelled “Judgment.”)
I am with rpm773 all the way. Have the guts to walk away from a business not meeting YOUR expectations.
I walked away from a pretty good new car deal a couple years ago because the salesman said my APR was on my FICO score. At the time I had enough cash to almost pay off the car, and told him that, but he was stuck in the FICO world. I walked away and he flipped out. He eventually called me with a great APR and I bought the car, saving my cash to close on my house.
Man, this new FICO formula is completely ass backwards!
Why does having more credit cards make you more credit-worthy for a loan? Being able to instantly get into a heap of credit card debt at a moment’s notice should make you a higher risk, not a lower one.
Same goes for having more than one authorized person on an account. That just adds to the possibility of accumulating more debt instantly and reducing your ability to pay off a loan! What the heck.
With this kind of cockamamie logic, it’s no wonder America is in such a financial mess right now! Sheesh!
“”6. Closing accounts will bring down the score.”"
Why would closing accounts bring down the score? I was always taught that the less accounts/debt you have, the better.
These new rules sound like they were created by the banks themselves!
6. Closing accounts will bring down the score.
So if I close the accounts I haven’t used in years, it will bring down my score?
In many cases YEP! I only closed one of my cards and my score went up. Banks nowadays are canceling lines of credit so be weary of that because that will effect your score.
@DustoMan: It certainly used to. I closed two cards in 2002 that still had a balance, and when I paid them off in full, my score plunged. Go figure.
Note to someone else who mentioned this topic earlier – this is not the same thing as paying off a loan. Paying off a loan in full will definitely raise your score.
5. Diversity matters more. A mix of healthy auto, personal and student loans would bring up a score. (Yes, I have all three.. credits are paid off every month but my report shows relatively small balances on the ones that I actively use on a monthly basis. LOLwoot!!)
6. Closing accounts will bring down the score. (Urg, I guess I have to maintain my Citibank card even though I am morally tempted to close it.)
OK EVERYONE! I offer to be the Guinea Pig. I have no debt, no credit cards, and don’t care about my FICO score. My wife has one CC that I wish she’d close. She probably won’t, but. anyway. Within the next 2-3 years, we’ll be attempting to purchase a house. I will let you know what my FICO score is at that point; and what rate I get on my mortgage. I’m willing to bet that whatever institution I go through to fund my mortgage understands that I have a remarkable ability to pay back the money they’ve lent me.
Worse, the cards I do have that had plenty of room available. My husband’s – Citibank dropped our available line of credit down about $100, so that now we only have about $100 available. And then Bank Of America did the same thing with mine only leaving me $300 from the $1800 where it was.
So I know our credit is going to take a hit because of their action.
“Spouses and children can improve their credit score by being an authorized user on a credit card account, but that’s it. No more piggybacking off strangers.”
Oh, no. Jesus, just what I wanted: another way my finances will be harmed because I’m not straight. My girlfriend and I, who’ve lived together with combined finances for five years, aren’t allowed to get a marriage license — and now our credit scores will go down, because we’re no better than “strangers?”
Grr. /quote
Exactly — i noted on the first page I’ve been sharing a card with my sig other for four years. It’s in his name, but i make all the payments and use it – and it’s really helped my credit.
now it will dissapear from my record?
4. Having less available credit will drag down your score more.
6. Closing accounts will bring down the score.
So, basically, the only real way to have a decent credit score now will be to have a whole slew of credit cards. Terrific. (And just because you pay for everything in cash does not mean a good credit score isn’t helpful. I have no credit. Literally. Because I’ve always paid in cash. It has hurt me – on cell phones and such. Fortunately, I have a husband with a great credit score. Which will probably go down this week, as we only have one credit card.)
Well, you still get penalized for being financially “responsible” and not widening your credit limits, not using your credit cards enough, and not diversifying your debt to all areas of your life: personal, home mortgage, school, car, clothes, appliances, etc. The person who saves and buys his car and big screen TV without monthly payments and closes all unused credit accounts is a chump to FICO. It’s a racket, but the crooks make the rules, and they change them however they deem fair to themselves only.
FICO is not the only credit score used by lenders or bureaus. Many, many, many of them use custom models that may resemble the FICO, but FICO they are not. Custom scores are used by car manufacturers, national banks (auto, mortgage, insurance, the whole bit), regional banks, local credit unions, furniture stores, very popular online lending aggregators, etc.
It’s pretty apparent that most consumers don’t realize this; FICO is “king” of credit scores only through lore and for certain businesses. Every time a lender utilizes a FICO, they pay a transaction cost to rate you with that, which is why FICOs tend to be used by non-chain apartment complexes, etc.
Get off the FICO prison train and stop trying to game it; in the vast majority of cases, the FICO in particular isn’t going to be used anyway.
I still don’t understand why canceling/closing a credit card account would bring down my score. If I have 4 or 5 cards, and I don’t used 2 or 3 why shouldn’t I be able to close my account without hurting my score?
You can refuse to play with them though! easy NO, Doable? YES. just pretend like credit doesn’t exist and use all cash.
I have a travel rewards credit card (two, actually) and I make all my monthly purchases on this card and pay it off in full at the end of the month. The credit limits are in the 5 figures now, and I don’t ever use nearly that much. The problem is, this company (citibank) does not report the amount used, and on my credit reports it always shows ***100% used*** up to the limit. ALWAYS. I’ve called them and asked them if it was possible to change, but it is not. Is there anyway to improve my credit (which is extremely good and only dragged down by these cards showing full usage)?
There seems to be alot of confusion over available credit and closing accounts.
It seems counterintuitive at first glance but here’s the scoop.
It’s essentially all about current debt owed divided by total value of credit lines available.
If you carry a $4,000 credit card balance and have 5-6 other credit cards with nothing owed on them and the total of all credit lines on those cards is $75,000 then the banks see you as an acceptable risk.
$4,000 / $75,000 tells the banks that if the crud hits the fan, you have $71,000 in available credit to back you up.
The most common mistake is when people close their credit card accounts after paying their card off.
Lets say you worked hard at paying off a huge credit card debt of $40,000 and then closed the account.
Now the banks see you as such: $4,000 / $35,000. Less cushion as you see.
The whole idea is to NOT carry debt on credit cards, the idea is to have a number of open cards to increase your credit line available figure. It’s also a good idea to request credit line increases every 6 months to help build up your FICO score. Do it much more often than that and it looks like your preparing for a loss of income or hard times lie ahead.
Having a good credit score does not mean having debt. Learn to play this game properly so that when you NEED credit you have it- leverage for some unplanned event or need. Just because you have credit cards doesn’t mean that you have to max them out. The finance world (used to, and will be forced to revert to) giving credit only to those who can REPAY it, so building a comprehensive credit history (AKA your score) is a prudent, smart thing.
Knowing how they build that score is like having cheats to a game.
It’s not an arbitrary score- it is based on your past performance; they use it to predict future results.
If you need your FICO score you can’t afford to buy whatever it is you’re trying to buy. If it’s a house, you can always try manual underwriting. And even if you qualify chances are you can’t afford it anyway.
“and there’s nothing you can to do stop it”
Some people are totally paranoid about data that governments collect on them. I would say that 99% of what governments at all levels have on me I gave them. I never heard of Experian, Exuifax, and Transunion until a few years ago. They have collected a wealth of information on me. I gave them none of it, and they are the only ones who have ever used information against me.
geez. I’m screwed no matter what. I have an ARM mortgage @12.5% and student loans that I can’t pay. I can’t refi with countrywide because of my student loans.
These changes seem to be more about trying to get everyone to own credit cards with high available credit then about being smart with your money. It’s more PRO-credit card company then about rating an individual. Sad.
Am I the only one who thinks this is absolutely ABSURD???? Over 7% of Americans are out of work and can barely pay their bills and mortgages, ppl are losing their homes, and the main reason for this crisis is we’re in debt!!! It’s time to close those credit accounts and start paying cash!! If you don’t have the money to buy, DON’T!!! And FICO wants to tell us if we don’t have a slew of credit cards and use them they are going to lower our scores??? Good Lord this country is backwards…
#6, given that they don’t care if the account has a ZERO balance, is complete and utter bullshit, and total injustice.
Is this why I received letters from all of my credit cards this week ‘increasing’ my credit limit?
Canceling / closing accounts has always impacted FICO scores negatively because the average age of all accounts can change. When closing the accounts you’ve had the longest (say, since 1990) the average age of accounts portion of your score will then be calculated based on the next oldest open account (say, 1997). Frankly, this system is antiquated and unfair because it makes you look like you havent had as long a credit history as you actually have, even though record of the account stays on your report for x amount of years (I think 7).
Also, when closing accounts your debt to available credit ratio is impacted, meaning that if you have 40k in available revolving credit and 10k charged to that credit across all accounts, your ratio is 10/40. If you close a card that has 20k of available credit, your ratio becomes 10/20. You can see how bad that looks – from carrying 25% of your available credit as debt, to 50%. It makes you look like you are less able to manage your debt well, that you may be financially in trouble, and that increases your risk as a debtor. Consequently your score goes down.