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The Restructured FICO Credit Scoring System

By: Hal James..

When it comes to personal finances, your credit history plays a huge role. If you want to apply for a mortgage, for instance, your FICO credit score is going to be on of the big factors considered by lenders when it comes to approving or rejecting your application.

Fair, Isaacs and Company are the party responsible for bringing us FICO. The score is an attempt to reduce our credit histories down to a single number that tells lenders if we are a good risk. The big news is the FICO calculation has changed.

If you've every bought a car or home, you probably think you know everthing you need to about how a FICO score works. You don't. Why? Because the recent changes to the calculation change the way the game works.

So, what is the big news on the restructured FICO calculation? Well, nobody is entirely sure. What seems to be happening is a reconsideration of debt and how the person in question pays it back.

Historically, even one missed late payment could really hurt your FICO. The value given to one late payment was so high, that there was little difference between the score of a person who missed just one payment deadline and a person who missed many.

The restructured FICO calculation corrects this. People missing one payment are punished much less, but those with multiple late or missed payments are hammered. In short, the restructured FICO calculation recognizes we're all human.

When there is a system in place, there is always a way to trick it. The authorized user function of credit scores was one such trick. It has now been removed from all FICO calculations.

Time is being given more weight in the new FICO calculation. Specifically, the longer you have had good credit, the better. Minor blemishes over the years are discounted. If you have kids, start establishing their credit early on.

From a financial perspective, our life is pretty much defined by our credit score. If you need to borrow money, your score is going to be an issue. Given this fact, it makes sense to know what it is before the ball gets rolling.

Article Source: Main Articles

Hal James writes about issues surrounding the best fixed rate mortgage loans for borrowers at FSBOAmerica.org.

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