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Better FICO Scores Expected

By Sally Maison
Published: Sunday, September 6th, 2009

FICO announced that unpaid bills worth $100 or less will no longer hurt a credit score. Fair Isaac Corporation (FICO), which developed the most widely used credit score system in the world, revised their systems in hopes of helping consumers get better scores. More importantly, this will allow creditors to have better assessments on a client’s ability to repay.

Better FICO Scores ExpectedPresently, creditors are using the FICO 08 in assessing the credit health of a person. In this model, the amount a person owes makes up 30% of his credit score. The accumulation of unpaid utility bills, parking tickets, and library fees will definitely hurt his score. FICO says it will overlook minor delinquencies since an unpaid parking ticket will not suffice in determining a person’s ability to repay a new loan.

Moreover, FICO will excuse a delinquency that was committed two or more years ago. This is on the condition that a person has not committed any other delinquency within that period.
Many consumers are expected to get better credit scores under this new system. People who often miss out on their parking tickets and utility bills will now have fewer reasons to worry.  Consumers have more reasons to celebrate as three major credit bureaus in the country embraces the new system. TransUnion, Equifax, and Experian have been using the update FICO 08 since last month. 

However, clients cannot expect an instant boost in their credit scores yet. Moreover, they should not expect every creditor to use this system. There are creditors, particularly mortgage lenders, who are still using the traditional credit grading system.  Experts hope, though, that this new system will enhance economic activities in the credit sector.

Credit specialists say that consumers do not have to wait for new systems to emerge if they want to have better scores.  One simple way to get a boost in score is by paying debts on time. This includes monthly fees and credit card installments. Experts add that finance linking is another excellent way of jumpstarting a credit score. Otherwise known as “piggybacking,” a person can drastically improve his scores by sharing an account with someone who has a good credit history.

Clients are also advised to avoid applying for loans when their current standing is not good. Applying with a bad credit score might lead to rejection. The more a person gets rejected, the more likely he is to be rejected in the future. Creditors take into account the number of failed applications a person has in his credit history. A word of advice from the experts: do not apply for credit when you do not need it.

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