New credit score formula for 2009

By Michelle Carolla
WBTW Reporter/Anchor
Published: December 30, 2008

Only a few years ago, no matter your credit score, you could buy a house or a car. That led to the massive fall of the housing market and now the credit crunch the country is experiencing. However, a revised credit score formula is set to start in 2009. 
Managing your credit score took on less importance for many during the past few years. Money was everywhere and accessible by anyone.  But now, it’s time to get a hold of your credit report and score. FICO, the credit scoring model that Fair Isaac invented for lenders to determine credit risk is revising it formula.
According to MSN, the new formula ignores small collection accounts less than 100 dollars. A good example of this would be unpaid library fines, a medical bill dispute and such.
The new version doesn’t penalize serious credit setbacks such as charge-off’s and repossessions, if your other accounts are in good standing.
Authorized users, this is when someone such as a spouse or child becomes an authorized user on a card held by a more credit worthy account holder.  After a lot of debate, authorized users will still be allowed, but FICO said they will work to protect the cardholder by reducing potential impacts to the score.
Negatives to consumers include: 
The new formula is more sensitive to your amount of available credit. Card companies are dropping credit limits, which could drop your score.
A small number of open and active accounts on your report will drop your score.  You can protect your score by using your credit cards sparingly and if you can, pay off the balance each month. Don’t close your accounts and keep them active.  Lenders want to see plenty of credit used responsibly.
Walt Standish, President of Beach First today said, “The Credit Score became less important in the past few years, it will be even more important from now on,” said Standish. “In the past, investors bought mortgages based on the real estate collateral, in the future the borrower will, once again, be the most important factor. The Credit score will be the largest part of that decision. 
Standish also said, “Repetitive 30 day late payments will ruin your credit score and will raise your cost of home ownership or perhaps prevent you from owning a home.”
All three credit reporting agencies will implement the changes by spring 2009.