New Fico Credit Scoring System Could Help or Hurt You

Fair Isaac has announced a 2009 makeover to the credit scoring system that most companies use to determine your credit worthiness. The company says as many as half of all borrowers will see their scores go up or down by about 20 points as a result.

One bit of good news is that an occasional missed payment will not carry the detrimental weight it once did. They'll be looking more at history and patterns of financial behavior.

Another change will see the amount of balances a consumer carries as being more important than the total number of accounts open.

Scores will still be on a 300- 850 point scale, but now instead of 10 categories, consumers will fall into one of 12 categories. Infrequent problem borrowers will no longer be lumped in with habitual delinquents.

The new rules are also once again allowing piggybacking - the method by which parents or other friendly mentors can allow a person to become an authorized user on their credit card accounts, and thus "borrow" some of their good credit history.

This practice was common a few years ago, and was widely used by parents to help children begin building a good credit history. Then private companies began marketing a service that paired people with bad credit with others with good credit, so they could qualify for loans.

Seeing that abuse - and unintended use - FICO barred the practice. Parents could still add kids as authorized users, but it wouldn't assist them in building credit. Now that opportunity is back, but it will be more difficult to establish. FICO says it now has technology that will let it filter out anyone who is trying to play the system.

In addition to young people starting out, women have traditionally been added as authorized users on their husband's accounts - thus giving them a credit score. Fair Isaac estimates that 30% all credit card holders are authorized users, rather than card owners.

Under the new rules it will take longer for these women to build credit, so a better plan might be for them to get a credit card in their own names, even if it must be a secured card.

Secured credit cards are, of course, also a good way for parents to help children establish a credit record.

Equifax and TransUnion will be first to roll out the changes, which will occur some time this year. Keep an eye on your credit score to see how it will affect you. And in the meantime, keep working to build the score, just in case you're one of the ones whose score might fall as a result of the makeover.