In 1956, Bill Fair and Earl Isaac devised analytical tools that attempted to quantify the risk of loaning an individual money and launched a company based on this scoring system. Their company was called Fair Isaac & Co., better known by the acronym FICO. Fair Issac & Company had several decades of success in Europe before coming to America. FICO’s system caught on in the United States beginning with Equifax in 1989 and followed by Experian and TransUnion in 1991.

I have always advocated that consumers take an active role in understanding the often confusing and difficult credit scoring model. Just when you thought credit scoring scoring couldn’t get more confusing for consumers, FICO roles out a new model – FICO 08.

Per Fair Isaac, here are the key changes in the new model:

• The new model will still allow legitimate authorized users such as a spouse and/or family member.  This credit building technique still works for spouses and children who have the same last name as the credit card owner. To maximize the benefit of this option, you should make sure that the account you are being added to belongs to someone you trust, has NO negative history reporting at all, has and keeps a balance under 30% of the limit and is at least 2-3 years old.
• Having just one big black mark on your credit, like a repossession, will matter less than it used to if your report demonstrates responsibility overall.
• Collection accounts with balances less than $100 will not impact the credit score any longer.
• Maxing out those credit cards will drag your score down even more than it used to! FICO 08 increases the emphasis on having available credit.
• Having a mix of credit is also more important in FICO 08. This means you MUST have at least 1-2 active major credit card accounts.

There are three basic things you can do to help your score:

1. Accuracy: Make sure that what is reported on your credit report is accurate.
2. Credit Utilization: Keep credit card balance below 50% of credit limit at all times – 30% is better. DO NOT max out credit your credit cards. NEVER go over your limit.
3. Pay your bills on time: There are TWO important DON’Ts when it comes to late pays:

• DON’T underestimate the affect that late pays have on your credit.
• DON’T overestimate the kindness of creditors to remove late pays just because you have a good payment history with them.

In conclusion, no matter what happens with credit scoring, you must remain proactive. Ultimately, you are the only one who can ensure your credit is as good as it can be.

Tags: Credit Scoring, FICO 08