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May 7th, 2009

How Will the New FICO Formula Affect You



For any consumer out there who hasn’t visited financial experts Ken and Daria Dolan’s website — www.Dolans.com — you’re missing out. Just today we found out that Fair Issac, the company which developed the FICO score, has changed the formula for how your credit score is calculated.

Dubbed “FICO 08,” the new formula, which ranges from 300-850 points, is designed to do a better job at detecting future defaults. Here are some ways the new FICO formula will affect you:

  1. Late-Payment Leeway: I can hear you cheering through the computer. According to the Dolans, “With FICO 08, however, an isolated late payment affects your score less than it does now, provided that your other bills are paid on time.”
  2. Small Collection Accounts Ignored: “FICO 08 will ignore collection accounts where the original balance is less than $100. That doesn’t mean you shouldn’t pay those accounts, of course, but it does mean they shouldn’t hurt your credit scores.”
  3. Debt Is a Good Thing: Sorry, but if you’re proud of the fact that you live debt free, I regret to inform you that FICO 08 doesn’t share your sense of pride. If you don’t “have a car loan or mortgage, and you rarely use credit cards, you may see your FICO score drop because FICO 08 places an even greater emphasis on a solid mix of credit types.”
  4. Lower Your Balance/Credit Limit Ratio: Some credit experts will advise consumers to keep a credit card balance between 30-50% of their available credit. Under the new formula, the Dolans say it’s best to keep your ratio down at around 10%.

When all is said and done, the Dolans predict a majority of consumers will see their credit scores rise.

Gregory Karp of the Allentown Morning Call writes “It’s difficult to determine when and if lenders will start widely using FICO 08. Only one of the three major credit bureaus, TransUnion, is offering a FICO 08 score to lenders, [Credit.com's President of consumer education¬† John] Ulzheimer said.”

Click here to read the Dolan’s complete list of “Things You Must Know About the New FICO Scores.”

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3 Responses to “How Will the New FICO Formula Affect You”

  1. Lee Werbin Says: July 24th, 2009 at 4:47 pm

    I recently cancelled my Capital One Visa credit card and I used the letter you suggested. I sent it by Certified Mail and the card was returned with their date of July 7, 2009. A week later I received a monthly statement showing a charage of $19.00 with is their annyal fee. I called the company and spoke to someone who said he was a senior customer service representative. When I questioned him about the letter that I had mailed to the only mail address on the statement, I was told they “probably shredded it” since I hadn’t included all the necessary information. We had a go round about that. However, he said that he cancelled the visa card and the $19.00 fee, He said they routinely notify the credit reporting agencies that an account was closed, but they don’t/can’t say that I was the one who requested that it be closed.

  2. Ginny L Says: September 22nd, 2009 at 2:09 pm

    Are you on any radio stations? I miss you Sat. AM on WOR

  3. Tim Manni Says: September 22nd, 2009 at 2:17 pm


    I am personally not on the radio, but our VP Keith Gumbinger has been interviewed on radio several times. Thanks for commenting, visit us again soon.


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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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