A long-delayed update to the leading credit scoring formula is rolling out in 2009, offering a few advantages to consumers — and some serious new risks.

FICO 08, the latest version of the FICO scoring model, was initially supposed to be introduced in the fall but was delayed by lawsuits between its creator, Fair Isaac, and the nation’s three main credit bureaus.

Fair Isaac says the new score will do a better job of predicting defaults than the classic FICO, which is used in more than 75% of mortgage lending decisions and by 90% of the largest U.S. lenders.

But FICO 08 is even more sensitive than the classic FICO to how much of your available credit you’re using. If your credit card issuer slashes your credit limit — which is increasingly likely these days — you could see your scores plunge, regardless of whether you carry a balance.

Another hazard: The new scoring formula responds more negatively if consumers have few open, active accounts. Because more credit card issuers are shutting down unused and unprofitable accounts, that boosts the chances of damage to your scores.

Not all the news is bad. FICO 08 offers some definite improvements for consumers in several areas, including:

• Collections. The new formula ignores small collection accounts in which the original debt was less than $100. This is a big victory for consumers and one I’ve advocated for years, because niggling little debts — created by unpaid library fines, forgotten parking tickets or a small medical bill that slipped through the insurance cracks — had an outsize impact on people’s scores.

• Credit missteps. Fair Isaac says the new version is less punishing to those who have had a serious credit setback, such as a charge-off or a repossession, as long as their other active credit accounts are all in good standing.

• Authorized users. Fair Isaac initially said FICO 08 would combat potential fraud by ignoring any “authorized-user” accounts in a borrower’s credit report. After a big consumer outcry and potential credit fairness issues, Fair Isaac backed off and decided some authorized-user information would be included.

One of the biggest hazards for consumers is the credit utilization issue. As issuers slash credit limits, the gap narrows between customers’ balances and their limits, which is generally bad for their credit scores.

Best advice: Pay down balances ASAP or you may see your score plummet.

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Best Buyer’s Broker Realty is an Exclusive Buyer Agent specializing in Long Island real estate (Nassau and Suffolk properties) and neighboring Queens County properties.

We don’t take any seller listings (yet we have more homes for you to see than most agents) and never have any potential conflict of interest like other agents who also represent sellers. We represent buyers only, 100% of the time. We can show you more homes for sale because we have access to MLS, FSBOs, Exclusives (homes that agents try to keep secret), foreclosures and homes not on the market that may be of interest to you.

We are not your traditional real estate agent. Our goal is to advise and protect home buyers and help them obtain the lowest price and best terms on their dream home. Call us at 516-887-6901 to see how we can help you save time and money. Or visit our sites at www.bestbuyerbroker.com or www.bestbuyersbroker.com

Consumers remain in the dark about how the credit-scoring system works in obtaining mortgages, insurance and credit cards, costing individuals as much as $28 billion each year, according to a recent survey.

Credit scores are a vital but often overlooked part of people’s financial health. The number, also known as a FICO score, determines interest rates on credit cards and is being used increasingly by insurance companies to set rates, as well as by prospective employers in hiring decisions.

Taking steps such as paying bills on time and not maxing out credit cards will improve scores. Scores also can be improved by paying off debts, rather than moving balances between accounts. Paying more than the minimum due on credit cards also improves your FICO score. Missing a single payment by more than 30 days may lower your score by 25 to 50 points.

One of the most important steps individuals can take is to obtain their reports from one of the main credit-rating companies: Equifax Inc., Experian Group Ltd. and TransUnion. An easy way to do this is through the www.annualcreditreport.com Web site the three companies run together. Consumers can obtain one free credit report each year.

According to Stephen Brobeck, executive director of the Consumer Federation of America, “People responding to the survey didn’t understand that credit scores are based on payment histories and how they’ve used credit in the past. Many respondents said factors such as income, age, marital status, and education levels influence credit scores. They don’t.”

A low credit score means you’ll spend more money to borrow. Raising a credit score by 30 points translates into an annual credit card finance-charge saving of $105, according to Anthony Vuoto, president of Washington Mutual Card Services. If all consumers raised their scores by that margin, he said the savings would reach $28 billion.

Have you obtained a copy of your credit report since they became free once a year? If not, you should. Getting a copy of your credit report is also a good way to detect identity theft, because there will be evidence of anyone trying to open new accounts or obtaining credit cards in your name.

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Best Buyer’s Broker Realty is an Exclusive Buyer Agent specializing in Long Island real estate (Nassau and Suffolk properties) and neighboring Queens County properties.

We don’t take any seller listings (yet we have more homes for you to see than most agents) and never have any potential conflict of interest like other agents who also represent sellers. We represent buyers only, 100% of the time. We can show you more homes for sale because we have access to MLS, FSBOs, Exclusives (homes that agents try to keep secret), foreclosures and homes not on the market that may be of interest to you.

We are not your traditional real estate agent. Our goal is to advise and protect home buyers and help them obtain the lowest price and best terms on their dream home. Call us at 516-887-6901 to see how we can help you save time and money. Or visit our sites at www.bestbuyersbroker.com or www.bestbuyerbroker.com

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If your credit problem isn’t too serious, you may still be able to get a traditional loan. First, you should correct any errors on your credit report, and challenge any entries you think shouldn’t be there. This is your legal right. If you can get it changed, then once those changes are reflected in your credit score, you may be able to apply again and get a loan for that home.

You also can go only to lenders who hold their own loans “in house.” This means they don’t sell them into the secondary market, which means the loans don’t have to meet certain requirements. A bank which holds its own loans can make their own rules (to an extent). Ask around to see if some of your local banks or credit unions keep mortgage loans in their own portfolio. Few do these days, but some still do. It pays to ask.

A more creative way to overcome bad credit is to buy a house with another person. This isn’t only for married couples. Any two people can buy a home together, and the lender will look at both credit histories. It might be tricky to buy a house with a friend, but it can be better for both compared to renting. For example, you might have a down payment, and your friend could have good credit. You could agree to sell the home five years later to recover your down payment and each of your respective shares of the equity that is built up from appreciation and the paying down of the loan.

Seller financing is another way to buy when you can’t get a loan because of bad credit. Some homes have sold without credit checks and even with nothing down by sellers who financed the purchase. Their motivation is usually to get a higher price and/or to sell a problem property, but this doesn’t rule out a good opportunity for you. When sellers don’t offer terms, find out if they own their houses free and clear. If so, you could make an offer that involves payments to the owner rather than getting a loan from the bank.

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Best Buyer’s Broker Realty is an Exclusive Buyer Agent specializing in Long Island real estate (Nassau and Suffolk properties) and neighboring Queens County properties.

We don’t take any seller listings (yet we have more homes for you to see than most agents) and never have any potential conflict of interest like other agents who also represent sellers. We represent buyers only, 100% of the time. We can show you more homes for sale because we have access to MLS, FSBOs, Exclusives (homes that agents try to keep secret), foreclosures and homes not on the market that may be of interest to you.

We are not your traditional real estate agent. Our goal is to advise and protect home buyers and help them obtain the lowest price and best terms on their dream home. Call us at 516-887-6901 to see how we can help you save time and money. Or visit our sites at http://bestbuyersbroker.com or http://bestbuyerbroker.com.

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More and more borrowers are watching their house values sink while the cost of their loans skyrockets. What to do? It appears that some are opting to skip out on the mortgage all together.Homeowners are abandoning their homes and, more importantly, their mortgages, rather than trying to keep up with rising payments on deteriorating assets. So many people are handing their keys back to lenders that a new term has been coined for it: “Jingle Mail.”

Current lending practices have created an environment where a measure as extreme as abandoning a home actually makes sense to some people.

Many home buyers put little or no money down, so they don’t have much invested in them. This leaves them with little incentive to keep making payments when a home’s market value dips below the balance of the mortgage.

The most serious consequence is a tremendous hit to credit scores. But for some, that’s better than throwing away money they’ll never recover by selling their home.

Credit scores are hurt much more by missing multiple payments – on credit cards, cars and so on – than by a single foreclosure.

According to Craig Watts, a spokesman for the credit reporting firm Fair Isaac, “The time it takes to regain your credit score [after foreclosure] can be shorter than after bankruptcy.”

Lenders are afraid that borrowers may find it’s worth the hit to their credit scores, if they can drastically reduce their housing expenses. Someone with good credit and a $600,000 home in a town with sinking real estate prices could buy a similar house nearby for $400,000, and then let the other $600,000 mortgage go into foreclosure.

Now, skipping out on a home is easier, thanks to the Mortgage Debt Relief Act of 2007. Previously, if a bank sold a foreclosed home for less than the mortgage balance and it forgave the difference, the borrower had to pay tax on that difference as if it were income. Now the IRS will ignore it.

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Best Buyer’s Broker Realty is an Exclusive Buyer Agent specializing in Long Island real estate (Nassau and Suffolk properties) and neighboring Queens County properties.

We don’t take any seller listings (yet we have more homes for you to see than most agents) and never have any potential conflict of interest like other agents who also represent sellers. We represent buyers only, 100% of the time. We can show you more homes for sale because we have access to MLS, FSBOs, Exclusives (homes that agents try to keep secret), foreclosures and homes not on the market that may be of interest to you.

We are not your traditional real estate agent. Our goal is to advise and protect home buyers and help them obtain the lowest price and best terms on their dream home. Call us at 516-887-6901 to see how we can help you save time and money. Or visit our sites at www.bestbuyersbroker.com or www.bestbuyerbroker.com

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