The Restructured FICO Credit Scoring System | Personal Finance

By HalJames
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People often worry about Big Brother watching us, but don't give a second thought to their credit record. Well, your credit history is the foundation of many things impacting your life. In fact, your financial profile can be boiled down to a FICO score.

So, just what is a FICO score? FICO is an abbreviation for Fair, Isaacs and Company, the business that came up with the calculation. Your FICO score reflects a calculation of various elements on your credit score ranking from the type of debt you have to payment histories.

Everything you know about the FICO score is wrong. How can I say that? Simple, the FICO score has recently been revised and new scores are being calculated. This may mean good or bad news for those in need of credit.

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.

The weight of transgressions in credit has always been a murky area with FICO scores. Many believed the weight given even to one late payment was far too much. After all, is one late payment really an indicator of a bad credit risk?

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.

Another change is the removal of the old authorized user trick. To help build up credit scores, people would often authorize another person. This was meant to be done from parents to kids, but was exploited heavily. It has now been removed.

Time is on my side said the old song. Well, it really is in the new FICO. The longer you have credit that is positive, the more it impacts your credit score. If you are a parent, establishing credit for your kids is a wise move. Just hide the credit cards.

Whether you are just looking to get a credit card or something larger like a car loan or mortgage, your FICO score is going to play a big part in the process. Make sure you know what it is before you apply.

About the Author

Hal James writes about the different types of mortgage loans available to borrowers at FSBOAmerica.org.

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