Adjusting to the New FICO Scoring System

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, it’s 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 you’ll 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 Isaac’s 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 didn’t realize they owed it.
  • Your first mistake won’t 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 you’re a spouse who wants to get credit on your FICO score for use of your joint card, this will no longer happen.