NEW FICO SCORING SYSTEM Fico 08

[edjr 5,749]

The credit scoring system is being tweaked again as Fair Isaac Corporation, developer of the FICO credit score rolls out a new model dubbed FICO 08.

 

The new product was originally announced back in June but was not due to be finalized for a while. A demand by users in the wake of both rising mortgage defaults and consumer credit delinquencies for a better way of analyzing risk has pushed FICO into speeding up the release. It is expected that FICO 08 will begin to roll out by late spring.

 

Last year the three major credit bureaus announced credit score packages of their own, probably having seen the success FICO was having in charging consumers for information on their credit scores. FICO, however, remains the product used by most lenders not only to grant credit but to set interest rates and other loan terms. FICO scores are also factored into credit decisions by insurance underwriters, cell phone, and utility companies and are sometimes used by employers to evaluate prospective employees.

 

FICO predicts that the new scoring system will help lenders reduce default rates on consumer loans between 5 and 15 percent. FICO 08 will supposedly go easier on consumers who make the occasional slip while coming down harder on those with multiple offenses. For example, it will give a slightly higher score than previously to a borrower who is late on one obligation but current on multiple other accounts. Those with several delinquent accounts could find their credit score has dropped.

 

Scores will still range from 300 to 850 and will take into account the same factors as the old version such as timely payment history, length of credit history, amount of debt, ratio of debt to available credit, type of debt (credit cards good, finance companies not so good), and any excessive amount of recent new credit. There will also be a premium placed on the debt mix; that is a consumer with revolving and installment credit will fare better than one with nothing but (revolving) credit card debt.

 

Among the big changes FICO is in the area of evaluating "authorized users." An authorized user is one who is not responsible for paying a credit card, but that card's history is reported on the user's credit as well as on the owner's credit. Parents have for years made children authorized users of their cards in order to help them build credit and many spouses derive all of their credit histories from being authorized users of their husband's or wife's card.

 

This form of credit improvement, commonly called "piggy-backing," however, became an article of commerce. As we reported in June, a whole industry had grown up to broker improved credit through authorized user status. Credit card owners with healthy FICO scores could make significant income by renting authorized user status to those seeking to improve their scores. The broker would manage the rental transaction (in which the renter would never have access to the actual account) paying the owner a fee of perhaps $150. Since the transaction has an almost immediate effect on the renters score the broker can fairly quickly remove that name from the account and recycle it to another renter, generating another $150 for the owner. The new credit information remains on the first renter's credit report forever.

 

Lenders became alarmed about this practice as it seemed to undermine their attempts to contain risk so FICO 08 will eliminate any impact of being an authorized user. This will not only affect the authorized user for a fee but also the college student hoping to build his credit on the foundation of his parents'.

 

A number of websites have sprung up in an effort to prevent FICO from implementing FICO 08 but most of the complaints are those that have long been leveled against credit scoring and credit reporting agencies. Critics have long questioned whether scores are valid measures of risk, complained about a lack of transparency about how scores are calculated, and postulated that minorities are unfairly penalized by the systems. The new version of FICO has prompted anger over the elimination of the authorized user category claiming that it will unduly penalize women who are more likely to have that status on their husbands' card than vice versa.

 

One website recommends that authorized users of spouses accounts open a few new ones either jointly with the spouse or in their own names and advises persons who are about to be married to retain their own credit cards even as they are added as an authorized user to the spouses credit lines.

 

Old news, yes I know.

 

Does anyone know when it's supposed to be implemented?

[NorthernVike 2,080]

FICO scores are bullshat. They always have to have three negitives about a person. On my last one, one of my negitives was lack of credit activity Because I don't use credit all that often. I never take out new credit cards and rarely borrow for anything other than new vehicles. Now that I paid off my home I supose my credit score will go down again BTW: last time I checked it was at 794

[Bill E. 676]

FICO scores are bullshat. They always have to have three negitives about a person. On my last one, one of my negitives was lack of credit activity Because I don't use credit all that often. I never take out new credit cards and rarely borrow for anything other than new vehicles. Now that I paid off my home I supose my credit score will go down again BTW: last time I checked it was at 794

 

Same thing here. I paid the house off last year. We just bought a condo on Hilton Head so I needed to get a loan for that. I had no debt and was never late on a payment but my score went down. I do not remember the number but I was graded at a B. I suppose now that I have a condo payment it went back up.

[Blitzen 0]

Same thing here. I paid the house off last year. We just bought a condo on Hilton Head so I needed to get a loan for that. I had no debt and was never late on a payment but my score went down. I do not remember the number but I was graded at a B. I suppose now that I have a condo payment it went back up.

 

I'm sure that if you default on a bunch of payments, they'll have you as an A after.

[Yer mom 2]

FICO scores are bullshat. They always have to have three negitives about a person. On my last one, one of my negitives was lack of credit activity Because I don't use credit all that often. I never take out new credit cards and rarely borrow for anything other than new vehicles. Now that I paid off my home I supose my credit score will go down again BTW: last time I checked it was at 794

 

Play pingpong with your credit card balances, theyre such focking idiots they see this as a score booster. Youve got too much cushin to give a fock about what your score does

[Mrsteak21 0]

FICO is crap.

 

One of my friends from high school went off to college and ran up 25,000 G's in credit card debt. He played DI sports and didnt have a job but still lived like a rockstar. This was 6 years ago. He had collectors calling him day or night for years - he told me he just stopped making payments about 8 months in. It took him 5 years to get out of debt, he is free and clear as of about two weeks ago. He also has about $40,000 in student loans. His credit score is 790 something.

 

I have no debt, car, house loans or even student loans. I have never missed a payment on anything. I pay almost everything in cash and have like $30 grand sitting in my checking account. My credit score is 715.

 

How the hell does that work? If I were a bank I would rather rent to myself than my friend and I would certainly give myself a lower rate....