FICO credit score system to change in 2009

Chances are, you already recognize the value of building a solid credit history and maintaining a high credit score.

This year, the model used by Fair Isaac to determine that all-important FICO score is set to change, Kiplinger.com reports.

Whether the FICO makeover ends up being to your benefit or detriment largely depends on the individual borrower – the company says as many as 50 percent of borrowers could see their score go up or down by 20 points or more.

For example, if you have only one or two minor black spots on your credit report, your score could actually be boosted by the changes.

That is because the assessment has been fine-tuned to take into account the severity and frequency of missteps, so you will no longer be placed in the same category with repeat offenders.

Another alteration will see the amount of balances a consumer carries holding more importance than the total number of accounts they have open.

Finally, Fair Isaac said that piggybacking will still be allowed under the new system, but it will take longer and be more difficult to build up good credit.

Piggybacking is a method by which a person establishes credit by being added to someone else’s account – for example, a parent adding their child as an authorized user of their credit card.

This strategy can be a great asset to the person who is trying to build credit, because they effectively get to borrow all of their sponsor’s good behavior to reflect well on them as well. It is not so beneficial, of course, if the other person has a spotty credit history.

Piggybacking generated controversy in the past few years, when private companies began marketing a service that promised people with bad credit they could be matched up with a better borrowing record – and receive loans they would otherwise not qualify for.

Under the new rules, Fair Isaac is not barring piggybacking, which the company acknowledges can help many legitimate borrowers eventually achieve financial independence.

Instead, the firm said it has implemented new technology that will enable it to filter out those who are playing the system.

Taken in total, the hope is that these changes will help lenders more accurately determine the risk posed by a particular borrower.

“Lenders said they wanted a stronger predictive model, but didn’t want to change how it is used,” Fair Isaac’s Careen Foster told Kiplinger.com.

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