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Credit scoring models have changed recently, which may affect the qualification of some borrowers when buying a home or refinacing a mortgage. Here are the primary changes:

1. Available Credit

The ratio of account balance to the amount of credit available appears to have more influence on the credit score formula. The less credit available that a borrower has on credit cards, the lower the score would be. Having more credit available could result in a better score. This change could have a broad impact on credit scores used by mortgage lenders to qualifying borrowers, if credit card issuers implement more cuts on their maximum limits. A borrower’s credit score may drop if the available credit limit is reduced, whether an account has a balance or not.

2. Open Accounts

It used to be that having too many open credit card accounts was viewed as a negative factor. However, it appears that has been reversed, provided that the accounts have not been delinquent or overused. More open and active accounts could now have a positive effect on credit scores under the new scoring system. More credit card lenders can close seldom used accounts, which is a potentially negative effect. Credit underwriters will also need to re-evaluate their lending policies.

3. Isolated Issues

The new credit score model will apparently be more forgiving to mortgage borrowers who only have one major negative problem on their credit report. The scoring model calculates the severity and frequency of negative credit items. Depending on the item reported, isolated problems will have less impact on credit scores, as opposed to continuous and recurring late payments and delinquencies. The potential upside of this change is that good borrowers will not be lumped into a category of repeat offenders.

4. Collection Accounts

Collection accounts with an original amount of less than $100 are disregarded. Another positive benefit for borrowers with minor debts owed from parking tickets, unpaid library fines, small medical bills, or other disagreements. Infractions like these should no longer affect credit scores.

5. Authorized Users

The previous FICO credit score model allowed for authorized users on credit card accounts to build a positive credit profile without being the primary card holder. While some authorized user data is allowed, the new formula has reduced the ability to build credit based on this method.

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