Even a nice credit, and the ability to pull together a down payment may still not be enough. It seems that a new update to the leading credit scoring formula is being rolled out by Fair Isaac, the FICO people. Due out in the fall, it was delayed by lawsuits between Fair Isaac and the leading credit bureaus, but it looks like all is well now, and the update is coming.
As early as January, credit bureaus will begin to use the new scoring formula. Instead of asking which you want first, here's the bad news:
- More emphasis is being placed on how much of your credit limit you're using. So, the latest practice of lenders, slashing your limits, could cause big drops in credit scores.
- Fewer open accounts with low balances reduces scores. So, with credit card companies closing out accounts right and left, many will see their scores decline.
- The formula will continue to assess some kind of score penalty for applications for additional credit, though it's not clear how it will be calculated.
While the bad news may be really bad for some people, the good news could help many scores in three ways:
- The new formula ignores small "collection" amounts of less than $100. So, if you got dinged for a small medical bill that slipped through the cracks, or a cell phone penalty under $100, you won't be penalized.
- Though not detailed, Fair Isaac says that serious credit mishaps, like charge-offs or repossessions, will be less damaging as long as all other accounts are in good standing.
- Authorized user information would still be included, as previously this was in doubt. Spouses whose only credit was as an authorized user would have been seriously impacted if their participation wasn't included.
How will your score do? It's too complex of a formula to know until it happens. You may want to have a report done after the credit bureaus have activated the new methods.
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and a referral to a Credit Restoration Specialist if needed