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As printed in the OC Register / Saddleback Valley NewsWritten by Jim E. Flynn, Century 21 Beachside Realtors, Lake Mission Viejo
June 3, 2008
Is a new FICO scoring system in the works?
Q. I was told that there was a new FICO scoring system. Will FICO scores change and will it be easier for us to buy a home? - Donna in Mission Viejo
A. Fair Isaac, FICO, is considered the industry's leading credit-rating firm. I understand that the new FICO '08 should be implemented soon and experts are predicting it could reduce default rates by between 5 and 15 percent.
Jim Kemish, president of a credit repair service called Sky Blue Credit, had this to say about FICO scores in an article on www.thefreelibrary.com
"Your pay history makes up 35 percent of your score. Clear enough, but let's take a moment to understand the implications. A late payment is an indication of financial stress. Financial stress translates into risk of default, and FICO communicates this risk to lenders by reducing your credit score. A lower credit score says, 'Don't lend to this person.'
But there is more involved. FICO weighs recent late payments more heavily than older late payments. A brand new late payment can send your credit score to a level that no lender will consider. On the other hand, anyone in credit repair mode should be happy to hear that the impact of a late payment fades quickly as time goes by."
So what will be the results? Consumers should see an "easier" scoring system if they have only have one credit ding, however, those with multiple credit problems will find it harder.
Q. What happens now if I have an approved family member/etc. using my card but they are not responsible for paying the balance?
A. These users are called AUs, authorized users of credit cards who are approved to make purchases but are not responsible for paying the balances. Under current FICO scoring, your credit card performance is reported on the AU's credit record, influencing their score. However, with FICO '08, AU status will no longer influence their credit score. So, AUs might consider changing their status on existing credit accounts from AU to joint, or opening an account of their own to build their credit score.
Q. What if I have high credit balances but am paying them off regularly?
A. High credit balances will deduct more points under the new system. More than ever, keep lower balances on revolving credit accounts. The new system will look favorably on consumers with various types of debt. For example, people with revolving and installment credit will fare better than those with nothing but revolving credit card debt.
FICO scoring will still range from 300 to 850.
Recent activity in Orange County has been encouraging. Agents from our Century 21 office at Lakeside reported good traffic at their Open House events and a decided increase in "walk-ins." I strongly recommend that prospective buyers know what their credit score is and maintain a good score.
"Knowing the score" includes your FICO score and being pre-approved from your chosen lender before you begin a serious search.
Contact the writer: Jim Flynn is a "Centurion" Award winning Realtor with Century 21 Beachside Real Estate in Mission Viejo.
Original article in The Register
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Jim E. Flynn
CalBRE license #: 01215480
Phone: (949) 463-0739