Thursday, May 01, 2008

FICO 2008: What Does It Mean?

In January of this year, the Fair Isaac Corporation (FICO) changed its scorecard. In the past, a score of 700 was considered premier tier, but under the new rules borrowers need to score at least 720-750 to be considered premier.

How many times have you view a credit bureau where all the bills are paid on time, but the score is still lower than you need? Without knowing the weight of these factors, we may have a difficult time counseling our customers.

As springtime means baseball in many parts of the country, many banks have people at ball parks giving away stuffed animals or t-shirts for a credit card application. In airplanes, they are hit up to apply for high-flying titanium credit cards. The average consumer does not realize that they may receive a shirt, but they also receive an inquiry that remains on their bureau for 25 months. Consumer-driven inquiries hurt credit scores. Customers are best served by not applying for any credit two months prior to making a large purchase, such as a house, automobile, boat or RV.

Some customers will tell you that they transfer the balances of their credit cards in order to take advantage of lower interest rates. Changing balances around can also hurt credit scores. It is better to telephone the credit card lender and ask it to match the other cardís offer.

Longevity counts when it comes to credit cards. Even if you have a card with a zero balance, if you have had it for a long time it counts as a positive item on your credit score. So, do not close the account. Instead, place the card in a safe and do not use it except for emergencies.

When available credit is less than 30 percent of the limit, call the credit card lender and ask for a higher limit. Payments usually take 30 days to show on credit bureaus, while an increase in the credit limit usually shows overnight. It is critical to ask the customer to use restraint in the use of the new credit limit.

The credit scoring system will continue to change as the society and economy changes. With the housing crisis and defaults on home loans, I am sure you will see more foreclosures on credit bureaus in the coming months. These clients still need transportation and progressive dealerships will develop lending relationships that will assist the new sub-prime tier of credit.

F&I will become, in some cases, an information resource for customers. We all need to know how to improve our credit scores and change the habits that lower credit scores.

Dealer Marketing Magazine, May 2008, P. 42