Why Maintaining Your Credit Score Becomes Even More Important During the Continuing Credit Crunch
September 24, 2009 by nawbo-slc
Filed under Business Finances
By the Financial Planning Association
It’s always a good idea to be vigilant about your credit score, but even if borrowing loosens up a bit in 2009, you still need to do everything necessary to keep your credit score high.
Fair Isaac, the company that created the FICO score, has been working on a new version of its landmark credit scoring method that might have serious consequences for you if you’re planning on borrowing for a home or establishing any other new credit in 2009.
The new version of FICO is going to be particularly focused on your balances, not only on your on-time payment records.
Your top priority under this new system: Get those balances down.
Reports say that the new FICO revision will actually allow a bit of lenience on late payment – something that might affect more than a few consumers with the downturn in the economy. Obviously, this won’t mean that someone can chronically pay late, but once or twice won’t make the same impact as in earlier FICO versions.
Yet credit utilization – essentially the amount of credit you’re actually using relative to your credit limit – is a much bigger deal simply because high balances are so prevalent right now. From the lender’s perspective, high balances mixed with a tough economy means a higher risk of default among customers.
So what’s a good target utilization rate for all your revolving credit accounts? No more than 50 percent of your credit limit, and if you can get it significantly lower than that over time, that’s a good plan. So, the lower your credit utilization, the better your score.
