Less debt activity could hurt you – Yes, it sounds contradictory, but apparently Fair Isaacs is going after the “Goldilocks and the Three Bears” scoring model – not too much debt and not too little. On the lighter end, if you only have one or two credit accounts open, that could whack your credit score down a few notches. FICO 08 has a “limited history” factor that penalizes credit users who only have a few, open accounts.
The $100 club – FICO 08 is deep-sixing negative scoring on collection amounts less than $100. In the past, an old, unpaid $79 phone bill could inflict some damage on your credit report. Now, anything under the magic $100 mark won’t factor in to your score.
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One mistake won’t kill you – The new Fair Isaacs model will go easier on consumers who have made one isolated mistake, like a furniture repossession, a one-time late credit card payment, or one-time charge-off. As long as the consumer’s other accounts remain in good standing, one-time, negative non-payment incidents won’t count as much against your credit score.
Banks should embrace FICO 08, as it promises to reduce default rates. Plus, any credit scoring model that does a more accurate job of identifying good credit risks (and bad ones) will help banks make better loans.
For borrowers, Fair Isaacs is touting FICO 08 as a consumer-friendly model that should actually push up the average credit score. But some consumer credit tenets are timeless – if you’re a high-risk borrower with a history of late payments, FICO 08 won’t change that. Conversely, if you pay your bills on time and prove to be a good credit risk, FICO 08 will continue to reward you with a credit score in the 700’s.
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