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Credit Score News, Tips & Advice « Credit Scores > Credit Score News > New credit scoring model seen advantageous to consumers

New credit scoring model seen advantageous to consumers

By Sally Maison
Published: Thursday, April 22nd, 2010

AGERM-00336935-001There had been some recent changes done in the credit score model calculation. The new changes could bring a big impact with on borrowers trying to apply for a mortgage or some other forms of financing. The changes in the credit score calculation are as follows:

Having an available higher credit limit and a low balance would be a good qualification for a good scoring formula. When the ratio results to a 30% or lower, the more beneficial it is to credit scores.

With the previous credit formula used, having multiple open accounts brings a negative impact but with the new system, more than one active account would be beneficial to a customer’s credit score provided it is not a delinquent nor a new account. The drawback though is that the credit card provider could close the existing active account which would affect the ratio of a good standing account.

Obviously, the new credit score model is lighter to borrowers with one big negative issue on their credit reports.  The new system would compute the frequency of negative factors or items and that some isolated scoring issues can bring a lesser impact on credit scores which is a total opposite to the recurring delayed payments and delinquencies.

A collection account which is lower than $100 is now disregarded.  This is another seen advantage of the new system for borrowers with debts considered minor like unsettled small-amount medical bills or fines like library or parking ticket fines. These kinds of minor infractions would no longer be a big factor that would affect one’s credit scores.

The old credit scoring model has provided the authorized users on credit card accounts to build a positive credit profile without the need of being the primary card holder.  Some data of authorized user data is still used and allowed but the new formula or scoring system has reduced the ability to build credit using this method.

FICO score usually ranges from 300 to 850 making 670-700 the most common score for most Americans, now the new system ranges from a score of 501 to 990. A 900 score and higher is given an “A” range while those with 600 or lower score would receive an “F” grade.  With the old system, a customer will be rated excellent with the 800-score but with the new system, it only corresponds to a “C” grade.  Whatever could be the difference, it is still important that consumers should be careful with their credit usage.

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