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Pensacola Real Estate News: The New Credit Scoring System – How It Will Affect Your Credit Scores?

If you are looking to buy a home and you need a loan, your credit scores are very likely to have an effect on your real estate purchase. The FICO scoring system is changing, and you should be aware of how this change may affect your credit score. If you are not familiar with FICO Credit scores, please see related articles at the bottom of this post.  

Credit_Card_On_Keyboard_RS250The Fair Isaac Corporation is the company that figures the credit scores for millions of Americans (and they won’t tell us exactly how they do it). In 2008, it is changing its credit scoring model. This change is predicted to do a better job predicting the likelihood of a borrower defaulting on a loan. The new model, dubbed FICO 08, will be more forgiving of occasional slips by consumers, but will take a harder line on repeat offenders.

Financial institutions use FICO scores to determine the granting and pricing of credit. Many other companies use FICO scores to determine your rates on insurance, deposits for utility services, etc. See my Related Posts references at the bottom of this article for more information on how credit scores can affect your financial picture.

Here are some important points about the FICO 08 model:

FICO 08 is predicted to reduce default loan rates between 5% and 15%. This is in response to lenders demanding better risk-management tools. Obviously the glut of foreclosures on the real estate market is behind this demand.

The new scoring system will look the same to consumers, with scoring between 300 and 850. The higher the score, the better your credit rating.


The new FICO model will continue to look at the same factors, including consumers’ level of credit indebtedness and payment histories, length of credit histories, number of recent credit openings and inquiries, and the type of credit used, to determine scores. But the new model will take a more detailed look into the information in consumer’s credit files to do a better job of assessing “good risks” and “bad risks.”

Consumers who are low risk will score better with the new FICO version, and consumers who are high risk will score lower.

Borrowers who are at least 90 days behind on a payment are considered “seriously delinquent“. Sounds kind of like a really really bad kid who needs to be locked up. These types of delinquencies will have a much more negative impact on credit scores than with the previous FICO scoring system. 

The new model will give a higher score to a borrower in arrears if they also have a number of other credit accounts in good standing. Conversely, a person’s score could drop if he or she has multiple delinquent accounts, thus forcing them to take it in the arrears (sorry, couldn’t resist that one).

Here are a few predictions about the new FICO scoring system’s effect on your credit scores, based on expert opinion (not my opinion):

Overall, more consumers should see their FICO scores go up slightly than will see their scores drop, according to Fair Isaac., the company that won’t reveal how it actually calculates credit scores. We just have to guess based on expert opinions.

I guess it is time for me to get out some of those old credit cards that have been stored away for years, unused and unactivated. If Fair Issac is being fair and honest, that should bring up my credit score, assuming I pay on time.

Related Articles on Pensacola Real Estate News:

Your Credit Score – The Key To Building Your Future Wealth

What Is a FICO Score? 

How Not To Lose Your Home Loan After You Are Already Approved

Click on Pensacola Real Estate News for a list of articles indexed by category.



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    […] The New Credit Scoring System – How Will It Affect Your Credit Scores?  […]

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    […] The New Credit Scoring System – How Will It Affect Your Credit Score?  […]

  3. Margaret Woda

    Excellent information for consumers and agents alike. I hadn’t heard about the changes. Thanks!