Your FICO Scores - Changes in 2009

The FICO score has long been the standard used by banks and other financial institutions to determine your credit worthiness. It is compiled using a complex system that measures things such the amount of credit you have available to you, the amount of credit you're using, how long you've had credit with a given provider, and how faithful you are about paying your accounts on time.

Each of the three major credit bureaus: Experian, TransUnion, and Equifax compiles a FICO score based on the information in their databases, and following the scoring system set forth by Fair Isaac Corporation. Your mortgage lender will ask for all 3 scores and then will generally take the middle number to use when determining how much credit you can have, and at what interest rate.

Until February 14 of this year, consumers were able to purchase the same scores through a website called myFICO.com. Now, because of a disagreement between FICO and Experian, the Experian FICO score will only be sold to financial institutions - not directly to consumers.

The second change involves a new scoring system that FICO rolled out in January. The new system, called "FICO Risk Score, Classic 08," is supposed to present a more realistic picture of the risk posed by subprime borrowers and people with short credit histories.

Under the new system, people with only one or two minor infractions on their credit will be given more favorable treatment than those who have a history of late payments and/or defaults. In addition, collections with an original value of $100 or less will not be counted under the new system.

A change that favors new borrowers is the return to counting "authorized use" of a parent or sibling's credit card when trying to build or rebuild credit. This practice, called "piggybacking," had fallen out of use after being subjected to abuse. (A few enterprising companies had figured out how to sell "authorized use.") Now FICO says it has technology that will help lenders see if an authorized use is legitimate before considering it as part of an overall credit profile.

The problem with this new scoring system is that only TransUnion will be offering it in the immediate future. Thus many lenders won't be using it. They want to wait until all three credit bureaus are on board with it so that all the scores they use will be based on the same criteria.

According to industry experts, the new system will raise or lower individual scores by as much as 20 points, which could cause considerable confusion when using old and new systems together.

www.creditscorecowboy.com is the #1 source on the planet for a free credit report, identity theft software and a blog with a wealth of information writtten by lending professionals that know about credit and what determines ones creditworthiness.

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