The new credit score model released recently may greatly help your FICO score.  Under the old model, if you had unpaid debts of under $100 they could greatly reduce your credit score.  Under the new model, FICO 08, small missed payments of $100 or less will not hurt your credit score.  These payments could be unpaid library dues or parking tickets that you forgot about.

Along with erasing minor missed payments, borrowers are also less likely to see their credit score affect by a single delinquency that is over two years old.  If your credit report shows that there was a minor debt that is over two years old the FICO 08 model does not penalize you the way that the old model would.  Another major change in the new credit score model is the amount of credit usage.  If your credit usage is high and you are near the limits on your credit cards you are likely to see a decline in your credit score.

The new credit score system, FICO 08, is currently being used by all three major credit bureaus; Experian, Transunion and Equifax.  Most credit card companies, auto lenders and regional and national banks have already adopted the FICO 08 model and are currently using it.  For mortgage lenders it is a different story.  For lenders backed by Fannie Mae and Freddie Mac the move has yet to be made.  The lenders are waiting for the ok from Fannie and Freddie.

With the new credit score model there are a few ways that you can improve your FICO score.  Make sure that you only take out a new line of credit when you absolutely need it.  Many retailers try to get you to sign up for a new credit card just to get a one time discount.  This one time discount is rarely worth it because it often hurts your credit score.  Also, make sure to pay bills on time and keep credit card balances low.  The new credit score model, FICO 08, is much more sensitive the high credit usage which is unlike the previous model.

Please make sure to return to Subprime Blogger for all your mortgage and financial news.  To stay up to date on the current state of finances make sure to bookmark the current news category below.  We offer information on everything from getting a lower mortgage rate to increasing your credit score.

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Author: Heather Best