The way your credit score is calculated has changed. The Fair Isaac Corp. – creator of the FICO score – announced on Jan. 29 that its new scoring model for determining credit scores, dubbed FICO 08, is in effect.
FICO scores – which range from 300 to 850 – are based on consumers’ credit histories and reveal their risk for defaulting on loans. A good credit score is anything higher than 700. Average FICO scores for U.S. consumers are around 690. More than 90 percent of the 100 largest banks rely on FICO scores in determining both who they will lend to and at what interest rate.
FICO 08 continues to look at financial history including indebtedness, length of credit history and number of open lines of credit. The difference is the weight these factors carry.
What does FICO 08 mean for you? Your Better Business Bureau explains:
- Debts less than $100 will not have as large a negative impact on your credit score.
- FICO 08 takes a comprehensive look at your credit history so one negative won’t necessarily destroy your credit rating.
- In order to reduce fraud associated with piggybacking (allowing others, perhaps with bad credit ratings, to be authorized users of the same credit card); FICO 08 restricts piggybacking to only the card holder’s family.
- Before FICO 08, if you had a history of using most of your available credit, it had a negative impact on your score; now that impact is even larger. Also, having too little credit history will have a more significant negative impact.
- Varied lines of credit — mortgage, loan, or school loans in addition to credit cards — have a positive affect on a credit score.
Consumers can request a free credit report from each of the three nationwide consumer credit reporting companies — Equifax, Experian and TransUnion — once every 12 months at www.annualcreditreport.com or call 877-322-8228. While obtaining an actual credit score may cost a few dollars, the cost is minimal compared to the cost of not getting a loan, paying higher interest rates or not being considered for a new job.
Start With Trust. For more information on being a responsible borrower and for reliable advice on how to increase FICO scores, visit www.wynco.bbb.org or call 470-484-1348 or 800-564-0371 for reliable consumer tips and information.