We have been seeing a new and remarkable level of responsiveness from FICO; little positive changes that once yielded 20 point increases are now yielding 30 or 40 points. Conversely, older derogatory information is hurting less, especially in cases where the old derogatory event is isolated.
A Quick Rebound
The implications for anyone in a credit repair program are wonderful. You should be able to get back on your feet quicker than ever. And if you have not started working on your credit yet, now is the time.
The Formula
What’s it all about? FICO does not divulge much, but it is not too hard to surmise what’s going on. FICO is a predictive model. It is designed to predict the odds of future default. Low numbers warn prospective lenders that you should be avoided, while higher numbers tell lenders that you are a good bet.
The Recession
As the recession got rolling in 2007 and 2008, FICO became more and more strict. Little changes in revolving balances were suddenly causing credit-score whiplash; moves of 100 points were not uncommon. And late payments were devastating and could take a year to overcome.
The Recovery
By the end of 2010 it was clear that the tides had turned. FICO was forgiving old derogatory events, and rewarding renewed efforts to build credit. Remember that FICO is all about statistics. They are not easing their guidelines unilaterally or for some charitable reason. They can only make changes when their statistics reveal a shifting correlation between events.
The Opportunity
These FICO changes provide a great opportunity. If you have had a spell of bad credit, open new accounts and your scores will rise significantly. If you can eliminate old erroneous derogatory credit, thereby isolating the legitimate events, you will see that the remaining items are causing little or no score damage.
It should be a great year.