According to a recent article in Money Magazine, Fair Isaac is set to roll out a new formula for determining your credit score. Their goal is to better differentiate between “good risk” and “bad risk” borrowers, thereby providing creditors with a more realistic idea of your risk o defaulting. The good news here is that generally responsible borrowers will generally see their credit scores increase.
Here are some examples of the upcoming changes:
» “Isolated delinquencies” will no longer have a major effect on your credit score. In other words, if you have a lengthy record of paying on time, a one-time slipup resulting in a 90-day late payment will have a minimal effect on your score. In contrast, routine late payments of less than 90 days will still have a deleterious impact on your credit score.
» Multiple credit inquiries in a short period of time, such as when you are shopping around for the best rate, will be weighted less heavily and thus have a reduced (negative) impact on your credit score.
» Having multiple different types of credit will help your score. You will be rewarded if you can show that you can handle multiple different types of credit, such as a combination of revolving debt (i.e., credit cards) and installment loans (e.g., auto loans or a home mortgage). If you have an otherwise solid credit record, then holding this sort of a mix of credit types will help your credit score.
Both Experian and TransUnion are expected to adopt the new credit scoring criteria soon. It’s unclear whether or not Equifax will follow suit.