Financial Planning

Your FICO score: It’s in the balance

Credit Conventional wisdom tells us that if we pay off our debts in full and on time each month, our credit scores will be fine.

Like so many other things these days, though, conventional wisdom has flown out the window.

Rebecca Wu of KSDK in St. Louis reports that the Fair Isaac Corporation, developer of the FICO credit score, has developed a new formula that puts more emphasis on how big your credit balance is -- regardless of whether you pay that balance on time.

Rick Sharp, senior vice president of First National Bank of St. Louis, told Wu that under the new formula, your credit score can fall if you carry a balance that's more than half of your credit limit.

"If their balances on their charge cards are high, there's an assumption in the formula they don't have ready cash and might be riskier to lend to than other people," said Sharp.

Fair warning. This strikes me, though, as a bit unfair. People who pay off their debts on time shouldn't be punished for carrying large balances.

Do you agree? Let me know, then read these tips on how to improve your FICO score.

Finally, check out these related financial literacy resources:


Bill Sheridan