Credit Scores

While the new FICO scoring system comes with some notable improvements, there are some who believe that there may be some disadvantages. To get a better idea of both the disadvantages and advantages that could have an effect on your FICO score, lets take a closer look at both ends of the spectrum.

The Disadvantages

There is really only one major disadvantage of the new FICO scoring system that has been noted and it reflects authorized users no longer being able to benefit from piggybacking on another persons good credit. The change was made to stop individuals with bad credit from being able to benefit from someone elses good credit by simply signing on the dotted line of that other persons application.

The only problem with this change is that it can very well punish individuals who are in good standing and truly share credit with another person. For instance, if a wife and husband share a credit card and see no need to apply for separate ones, the person listed as the primary user will be the only one to benefit credit wise. So if the wife is considered an authorized user, she wont be able to take advantage of her own responsible use of the card and thus wont benefit from a higher FICO score.

Some Advantages

Despite the fact that there is a disadvantage associated with the new FICO scoring system, it was actually created to benefit borrowers. Lets look at some changes that actually have the potential to improve your FICO score:

• Your first missed payment is forgiven. If you make the honest mistake that many do by forgetting to make a payment on bill you owe, it will be forgiven the first time. However, if it occurs again, it will receive a harsher consequence.
• Small collection accounts are overlooked. Another improvement inherent in the new FICO scoring system is the fact that any collection accounts under $100 will be forgiven and will not affect your FICO score.

Many changes that affect a wide spectrum of individuals can come with a few disadvantages. But for the most part, it seems that the new FICO scoring system brings with it several advantages that can positively affect your FICO score.

Some people are happy about the new FICO system but others may be a little displeased. No matter what the reaction is, it seems it will take some adjusting to get used to. Because so many of the changes affect a wide group of individuals, its important to understand just what the new system means and how it can affect your FICO score.

The Purpose of the New FICO System

After a difficult few years of lost jobs and homes, many individuals have found that they have a FICO score in a much lower category than before. Because this score basically determines whether youll be approved for any type of financing, this means many more people will be denied loans. To help rectify the situation, Fair Isaac is releasing the new system which may help some borrowers to get higher scores.

The Adjustments

So how will they receive these higher scores? It will likely occur because of the following adjustments:

• Better sorting. One adjustment that many are happy about is Fair Isaacs decision to sort late payments and items in collections according to the amount owed, where in the past they were weighed similarly. So now, if you owe $100 to one company and $5,000 to another, the $100 payment will not punish you as harshly.
• Small collection accounts are forgiven. Amounts under $100 will be forgiven definitely a benefit for those who may have overlooked a video rental bill and didnt realize they owed it.
• Your first mistake wont kill you. From time to time we all forget to make a payment, whether because of a vacation or because we have a lot of pending issues to deal with. The new FICO system will account for this scenario by allowing you to have a late payment the first time you make the mistake without penalizing you.

One adjustment to the new FICO system that some may not like is that authorized users are no longer included in the credit ranking. So if youre a spouse who wants to get credit on your FICO score for use of your joint card, this will no longer happen.

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