New formula coming to calculate credit score

In early spring, the Fair Isaac Corp. -- creator of the FICO score -- will unveil a new scoring model for calculating consumer credit scores, dubbed FICO 08.

FICO scores range from 300 to 850, with higher scores being better. They're based on consumers' credit histories and reveal their risk for defaulting on loans. A good credit score is anything higher than 700. U.S. scores average around 690. Most of the largest banks rely on FICO scores in determining who they will lend to and at what rate.

Not only can a low FICO score keep consumers from getting loans to buy a house or car, but many landlords, utilities and employers rely on the score as well. A bad score can keep you from getting a good rate on insurance, an apartment or even a job.

Fair Isaac Corp. says the new method is more forgiving of minor slip-ups and will more accurately predict default risk. Fair Isaac Corp. predicts more people will see their score increase than decrease, under FICO 08.

FICO 08 will still consider the same financial history factors, including indebtedness, length of credit history and number of open lines of credit. The difference is the weight these factors will carry. Fair Isaac Corp. says two people with the same score today could have completely divergent scores under FICO 08.

Your score might go up if you maintain various lines of credit, such as credit cards, a car loan, and a home loan, because that demonstrates an ability to manage debt. You will also be penalized less if you are delinquent in one account, but are in good standing in others.

Your score might go down if you have many delinquent accounts. That's always been a negative, but people with multiple delinquent account may see their score slip even more.

Piggybacking has become a popular way for people with no credit or bad credit to increase their credit score. It involves adding an authorized user to an account maintained by a person with good credit. Often, parents will make a child a joint user of acredit card, helping the child build a credit history.

Credit repair services have cropped up that encourage people to essentially "sell" their good credit to people with poor credit, by adding authorized users to accounts. To discourage this, when determining credit scores FICO 08 will not consider accounts where the consumer is only an authorized user. Parents can still make a child an authorized user on a card, but the child's own FICO score will be unaffected.

Consumers can request a free credit report once every 12 months at www.annualcreditreport.com. Consumers can get a free report from each of the nationwide consumer credit reporting companies: Equifax, Experian and TransUnion. Obtaining an actual credit score may cost a few dollars, but for those concerned about their score, that's minimal compared to not getting a loan, paying higher interest rates, or not being considered for a job.