This is extremely important:

Here is an example: Let’s say you have a Trans Union score of 640.  You have a six years old collection account and a three year old closed account with delinquency as early as four years ago.  You also have three to four accounts in good standings and opened within the last 4 years.  No matter what you do, you can’t get that score above 640.

Suddenly you write a letter to a collection company and was able to have that negative account remove! You will expect that score to move up but Bang, it drops to 635. You will be left wondering what was happening. Well you have been rebucketed which is actually a good thing.

When that collection dropped, that was the only collection you had and you are currently sitting in a group with other individuals who also have no collections, but they too, have delinquent accounts. Their late accounts aren’t as recent as yours, so you have one of the lowest scores in the group.  BUT, the “members” of this group are constantly changing, and your reports are suddenly looking much better than the newcomers and you suddenly see a boost to 654!  Three months pass and your negative accounts are aging therefore your good accounts have hit a milestone or reached a birthday metaphorically and has been boost to 670!  In this case you are one of the best of your group, but you still have late accounts that you are current on, Your old late have dropped because your 90 days late becomes 60’s, 60’s become 30 and they are less hurtful. You will be sitting pretty good with a score of 740.

One day, your last reported late accounts drops off…..your good accounts are all much older around five years or more and you have no bad accounts, and you will get rebucket again to maybe 785.  You won’t believe your eyes.

Basically, with a collection showing, you won’t make it to that next bucket with late accounts showing, you won’t make it into the next bucket. Once they are cleared your score will move up. This is why a score can remain the same for a few years now.

I do know that two buckets next to each other share some of the same scores around 30 points in either direction, which is why you can actually get a lower score when you enter a higher bucket.  But being at the next level allows you to move up and past that old score much faster!

The Rebuck Change?

 In general, the changes seem geared toward making clearer distinctions between good credit risks and bad ones. The penalties for occasional slip-ups in making timely payments will be reduced; while those who repeatedly make late payments will see their scores fall more. People who are close to their limits on credit cards will likely see their scores fall. Those who successfully manage a variety of loans — such as having a mortgage, a car loan, and credit cards at the same time — will get rewarded for their good behavior.

In addition, there are other specific rules that will become more important under the new system. Being more than 90 days late on a payment is already a no-no, but if you start making a habit of it, you’ll see your score drop as a result. On the other hand, you might get away with single delinquent accounts if you have other loans whose payments are up-to-date. Also, simply applying for credit too many times used to lower your score, but doing so now won’t cause you as much grief.

Why the changes?

The FICO-score rule changes fit well into the context of the mortgage crisis and the ensuing credit crunch. While it initially appeared that only subprime borrowers — the poorest credit risks — would have a problem repaying loans, mortgage delinquency rates are now rising even among more creditworthy borrowers. In addition, credit card trusts holding receivables from customers of banks like Capital One and retail stores like Home Depot, Circuit City, and Wal-Mart reported an 18% rise in defaults in October, with 90-day delinquencies up sharply as well.

It’s clear that many lenders have realized that they made bad decisions in judging their customers’ risk of default. Those decisions were, at least in part, probably due to reliance on FICO scores that may not have accurately assessed that risk. It’s likely that FICO is merely responding with changes it believes will address the shortcomings of the old score.

For borrowers, however, the score changes could be a pain in the neck. But the jury’s still out on how big an effect the changes will have. There are some examples in which scores are moving as much as 25 points in either direction, so there will certainly be some people who’ll feel the pinch — especially in the critical middle of the score range, where small changes can make a dramatic impact on borrowing rates and credit availability.

However, changes to the scoring rules were inevitable. Once borrowers figured out how to game the system by getting someone with better credit to name them as an authorized user, Fair Isaac had little choice but to eliminate that tactic as a factor in credit scores. Furthermore, new competition from a joint venture put together by the three credit rating agencies is forcing Fair Isaac to defend the supremacy of its FICO score with a lawsuit — despite its causing particular friction with Equifax. Some borrowers will complain, but just as the IRS acts when too many people take advantage of a tax loophole, you can’t expect FICO score loopholes to stay open forever.

What to do
None of these rule changes really affects how you can get good credit. Stop yourself from overusing your credit cards, and don’t let stores talk you into taking new cards for a quick discount if you won’t get them paid off quickly.

If you’ve had good credit in the past, just keep doing what you’ve done, and you can still expect a score that’s good enough to keep your rates down. And while those who are trying to make up for poor credit decisions in the past may see the score change as a bump in the road, staying on track by paying down debt and making on-time loan payments is still the best way to improve your score in the long run — no matter how they calculate it.

Update as of December 2013

What is currently apparent, I have noticed this new credit score model has not happened yet with any other bureau except TransUnion in some cases. Equifax stated that they will not allow FICO to apply this model to their data and I haven’t notice the change in Experian either. Now Experian has their own scoring system called Vantagescore that we will discuss later. Whenever someone in the media request information from credit reporting agency as to if they will permit this model, their response is quite ambiguous.

Why, I believe that model is illegal pursuant to the ECOA. You can take the time to review the provision and ACT and notice the following:

(6) Credit history. To the extent that a creditor considers credit history in evaluating the creditworthiness . . . in evaluating an applicant’s creditworthiness a creditor shall consider:
(i) The credit history, when available, of accounts designated as accounts that the applicant and the applicant’s spouse are “permitted” to use . . .

As it stands now, the law clearly states that “any” account which an applicant is permitted to use must be considered. There authorized user accounts should be part of this provision. Considering lawsuits that may follow, it appears that modification to the scoring system has not and probably will not happen. Maybe it was just a way to slow down the business interest of selling tradelines and many believe cause the sub-prime debacle.

So as of now adding tradelines to a credit report is still a great way to build one’s credit score if we take our reference from the ECOA.