Credit Scoring Methods Change

There are a few reasons why you’re credit scores are dropping…

First, timeliness is huge. Timeliness of loan repayments is a major factor in most of the credit scoring models that are based on credit files at the three bureaus (FICO’s being the best known). When people start falling behind, scores go down. For example, the bureau reports that average credit scores of individuals who have a late auto payment are about 100 points lower than those who don’t owe money on their car.

The use of credit line on credit cards and home equity lines is a factor in most scoring models. When debt issuers reduce credit lines to contain their exposure, this can lower credit scores of the affected person(s). The reduction in credit lines by many card issuers seems to have been pretty widespread, thus affecting many scores.

Lastly, the size of monthly payment relative to minimum payments on revolving credit lines is another main factor in the art of a scoring model. People who make the minimum payment are scored far less favorably than those who make large payments or those who smartly save up and pay in full. Say if someone who was paying all of their balances each month started just making their minimum payments, some models would interpret this maybe as a sign of hardship and that default is more likely.