The Next Generation scoring promises to help cut through this massive amount of information more precisely than the old FICO scoring could. Based on past experience, Fair, Isaac has determined the most powerful indicators of future credit risk, namely severity, frequency, and recency, and applied these in the making of their Next Generation scoring. They ve developed models that weigh financial data and produce a score that indicates risk level. Lenders can then decide whether or not they want to extend credit to borrowers who represent that particular level of risk. Severity refers to a how damaging a situation is likely to be.
Recency refers to how recently the credit offense occurred.
A credit lapse five years ago is not as risky as a credit lapse only a year ago. If you ve been paying your bills punctually for the last couple of years, you re generally in better shape because your recent history is good. Your available credit may also affect your score. If you have no cards, you have no credit history and thus, no way of showing that you can be trusted based on past performance. In fact, once you hit seven open credit cards or more, your score may start to decline on that information alone.