Comments on: Bureaus Roll Out New Credit Score Formula for 2009

By: tom mcculloch

tom mcculloch — Sat, 31 Oct 2009 13:52:08 +0000

I came to this article trying to find the actual algebraic formula that is used to arrive at the credit score. Once you know the old formula it is easier to see exactly what changed and how it impacts the “new” credit score. And if all 3 credit bureaus use the same formula and yet all 3 have slightly different scores, it leads one to think each bureau puts their own distictive “spin” on the exact same data reported by lenders. Exactly what is the formula(s) used??? Or is the resulting number they drive our credit-life by top-secret?

By: Brian Patton, CCIM

Brian Patton, CCIM — Thu, 07 May 2009 14:20:48 +0000

No doubt that this change is to help those caught up in the mortgage debacle. Doesn’t seem to help cash strong customers. Kudos to Doug’s post. He’s right on the inflation/dollar decline argument. The only bright spot in that is that real estate investors will see an increase in the “number of dollars” that their real estate is worth. This doesn’t really translate into increased value though. Check out my article on this subject at:
http://www.northfulton.com/Articles-i-2008-03-20-170780.112113_Experts_say_focus_on_bad_news_creates_crisis_of_confidence.html

http://www.capitallistings.com

By: Delawrenceblue

Delawrenceblue — Mon, 02 Feb 2009 08:40:21 +0000

The 2009 improvements to FICO scoring system are great. I own shares in Citigroup and I hope now they can start making money again. The problem we have in America is one of lack of knowledge one how to properly use credit. Credit should be used carefully and all the risks factors should be understood.

By: Dan

Dan — Thu, 15 Jan 2009 17:07:28 +0000

Kitty is spot on.

I don’t see what the hub-bub is about. Increased attention to the utilization numbers is appropriate IMO.

Utilization is your debt divided by your credit limits. The denominator gives a great indication of banks’ opinions of your creditworthiness, and the numberator gives a great indication of how you’ve used that credit. Bravo to the credit bureaus on rewarding those of us who don’t max out our cards!

As for the new policy of ignoring collections accounts under $100 – I don’t loudly object, but I think perhaps lowering the weighting would have been more appropriate than ignoring such accounts completely. I don’t see creditworthiness in somebody who took advantage of free cable tv for a couple of months by simply not paying the bill until it was turned off. It should be a mark on their credit, although I can understand why they wouldn’t want it to be as big of a mark as larger delinquencies.

By: kitty

kitty — Wed, 31 Dec 2008 04:16:18 +0000

“Dave Ramsay refers to the FICO score as the “I love debt” score. I think I understand why now. The more you charge and go into debt, as long as you pay it off eventually, the better your score.”

Hello? The more debt you have the higher your utilization ratio (ratio of debt to available credit). Higher utilization = lower score. This is elementary school math.

The formula may have a bug or two regarding handling of paid off mortgages but the effect is minor.

But as to the rest of it – you don’t need to carry balances to have a good score. In fact, if you pay your balances in full, your score is higher.

By: Jon

Jon — Tue, 30 Dec 2008 19:05:53 +0000

Chase just increased my credit limit about 30%. I thought it was just random because I only use about 10% of my limit. Maybe they’re looking out for my credit score. Thanks Chase!

By: sam

sam — Tue, 30 Dec 2008 18:59:48 +0000

Dave Ramsay refers to the FICO score as the “I love debt” score. I think I understand why now. The more you charge and go into debt, as long as you pay it off eventually, the better your score.

By: Ken

Ken — Tue, 30 Dec 2008 18:28:49 +0000

I received a letter in the mail yesterday from Chase that they have closed my credit card account due to inactivity over a two year period. I guess this will hurt my score now.

By: kitty

kitty — Tue, 30 Dec 2008 18:21:17 +0000

My biggest problem with the way they calculate the score is that repaying your mortgage actually hurts rather than helps your credit score. Not much, but it’s still seems stupid: your credit report still contains your old mortgage with usual “paid as agreed” for all the past years and the fact that you repaid it. I know it happened with one blogger. I also checked my credit score once when I got my annual credit report and I got my credit score out of curiosity. Not the FICO one, but the one from one of credit companies – I hadn’t realized that was what I was ordering. It was fine, but not as high as I thought it’d be.

Now, I haven’t EVER missed a payment in my life, my credit history goes back over 20 years, one of my CCs is over 10 years old, and my utilization is in single percentage digits. One of the reasons listed was no housing loans. Well, yes, I paid off my mortgage, do they expect me to take a home equity loan I don’t need?

Now it doesn’t hurt me – I don’t know what my FICO score is, but it is good enough to receive zillion of preapproved 0% offers. Nor has AmEx or any other card reduced my credit 13K+ limit. Besides, I don’t need the money, at least unless someone wants to give it to me on the same conditions our government gets it nowadays. But it still seems stupid.

By: rbk

rbk — Tue, 30 Dec 2008 16:15:11 +0000

Any change happening to the FICO score is based in data. If it turns out that the effect of something like a chargeoff is lessened and the effect of something like high utility is increased, it’s because the data show the latter to be more of an indicator of credit risk than the former. I’m not a big fan of Fair, Isaac (I used to work for a competitor) but they are very good at what they do and it’s all data-driven. They are not trying to encourage or discourage certain behaviors; they seek only to sort people from best to worst credit to provide the best available advice to lenders. The gnashing of teeth over a change to the FICO score is a bit out of line.