New FICO Scoring System Changes

FICO, Fair Isaac Corp, will be changing the credit scoring system. You may be asking why am I posting this on a real estate blog? Well, this affects the mortgage rates and monthly payments for people who have not closed on their home by September. Fair Isaac Corp is saying that this change will not have much affect. I will have to agree with the article from NewsObserver.com.

“Because businesses interpret scores differently, a slight change could be the deciding factor in whether a landlord decides to rent to you or whether your bank decides to increase the interest rate on your mortgage or home-equity loan.

For example, according to Fair Isaac’s Web site (www.myfico.com), the difference between a score of 620 to 659 and one in the range of 660 to 699 can result in a $163 difference in the monthly payment on a 30-year mortgage.”

This change will also affect others because of a “Piggybacking.” Piggybacking is a term used when someone with little or not credit is added as an authorized user of a credit card from someone with good credit to help build up their credit score, ex. a child as an authorized user on a parents credit card. There are other scenarios like this and the change will hurt the good credit scoring individual.

So what can you do about this?

Remove the authorized user from your account or switch to a joint account. Their are drawbacks to the latter so I suggest you head on over to MyFico.com to download tips on how to improve and maintain your credit score.

Another good article about this is located at STLtoday.com