FICO 08Credit Score System For Credit Cards

With the new FICO 08, if your credit card issuer slashes your credit card balance, this could affect your credit score. Recently it has become a norm with credit card issuers to slash balances of accounts that are not being used and are not profit generating.  This in turn reduces the difference between your overall limit and the amount of credit used. It is a known fact that the higher the difference between the two, the better the impact on your credit scoring, and the smaller the difference the worse the impact. FICO experts are of the opinion that the reduction of balance of one single account will not hamper your credit score, however, if several accounts start to get reduced, then that may be a cause of worry, as you may see a decline in your credit score.

Benefits of New Credit Rating System For Consumers

While the new FICO 08 credit scoring system is set to usher in new changes to credit scoring, there are a few victories for the consumers as well:

• Accounts In Collections: The new credit scoring system is set to be less harsh on consumers who have small unpaid amounts which are less than $100. While the previous FICO credit system was fairly harsh on these small collection amounts like unpaid parking tickets, small medical bills or library fines etc., the new scoring system introduced by Fair Isaac is set to make life a little easier for consumers.

• Major Credit Issues: FICO 08 apparently is not as penalising as it’s predecessor, when it comes down to consumers having repossession or charge-off against their name. The only criteria however is that all the current accounts of the clients should be up to date and in good standing.

• Authorised-Users: As you may already know, adding an authorised user to an individual’s credit card is a widely accepted way of being able to improve the other person’s credit score. While this has been widely exploited by credit repair companies, Fair Isaac have decided that that is no longer going to be the norm. While speculation still exists as to the outcome, it is believed that only a limited number of authorized users will be allowed on an account and after that point any further users will be disregarded.

There are some of the changes that consumers can expect with the introduction of the new FICO 08 credit scoring system by Fair Isaac.  While the three credit bureaus are introducing the new credit scoring system differently it will interesting to see as to what are the changes of the new credit scoring system on individual credit scores.

References:

1. New threads to credit scores – MSN Money
2. FICO credit system to change in 2009 – Credit.com
3. Bureaus Roll Out New Credit Score Formula for 2009 – All Financial Matters

Credit Card Accounts To Build Good Credit

Having credit card accounts is not necessarily a bad idea if you use them wisely. To build good credit, you must have a credit history and often applicants with no history on their credit scoring report find it hard to get new credit or loans. For this reason, credit card balance can be useful and help to build good credit. Even if you are in the low income bracket, you might be able to get a low credit limit credit card. However, only apply for a new credit card account if you can afford the repayments or it will just end up damaging your credit scoring report.

Close Credit Card Accounts For Credit Card Balance Transfer?

If you have a credit card balance with Bank A and Bank B comes along and offers you better interest rates, it seems the only logical thing to do would be to close your credit card account with Bank A and transfer your credit card balance to Bank B’s credit card immediately. But before you do that, consider what that means for your credit scoring report.

When moving from one credit card account to another, if the credit line on both accounts is the same, your “debt percentage” stays the same. Your debt percentage is the amount of money you owe in proportion with your credit line. So if you have a $5000 credit line on your credit card account and have used $2500 of it, your debt percentage is 50%. Credit card balance transfer from one account to another with the same credit line does not decrease your debt percentage at all. If your new account has a lower credit line, this increases your debt percentage.

Leave Credit Card Accounts Open For High Credit Score

Transferring your credit card balance to a new account makes sense when you can save money on interest but do it the smart way. If your credit card account with Bank A has been open for 5 years and you have only just opened a new credit card account with Bank B; Bank A is a valuable asset on your credit scoring report. Even if you do not use the account, leave it open. This gives you a larger credit line (Bank A + Bank B) but since the amount of money you owe remains the same, your debt percentage decreases and this is a good way of maintaining a high credit score. If you close your account with Bank A, your well-established credit scoring report history is deleted and you start afresh and this will affect your high credit score.

Build Your Credit With New Credit Card Accounts

Each time you apply for new credit, your credit scoring report rating falls slightly however if used wisely, new credit card accounts can help to build your credit. Here are some tips:

• To build your credit score, your new credit card balance should decrease your debt percentage so think hard before applying.
• Only apply for credit card accounts that you can afford to repay and really need.
• Applying for  too much new credit and too often will negatively impact your credit scoring report and you definitely do not want that.
• Credit card balance transfers to new credit card accounts with lower interest rates will save you money but consider the implications on your credit scoring report and act accordingly.
• If you transfer your credit card balance to a new account, leave the unused old account open for a few years to maintain a high credit score on your credit scoring report. This will help build your credit rating until you have established a repayment history on your new account.