FICO 08
In response to the “sub-prime housing melt down” beginning in 2006, FICO 08 was released the beginning of this year. It was originally designed in 2007 to be released in 2008 but it experienced multiple delays.
The rollout of the new credit-scoring system comes at a time when lenders say they are eager for more-accurate measures of credit risk, in part because of rising loan defaults as subprime mortgages go bad and housing prices fall. There are signs that delinquencies are creeping into other types of consumer debt, including auto loans, further prompting lenders to tighten up on credit.
"Consumers who are low risk will score better with the new FICO version, and consumers who are high risk will score lower," says John Ulzheimer, president of consumer education for Credit.com, a personal-finance Web site. Also, the new model will more finely slice and dice the information in consumers' credit files to do a better job of separating the "good risks" from the "bad risks," particularly for subprime borrowers; those with "thin," or young, credit files; or consumers who are actively seeking new credit. "Those are the communities that lenders are most interested in" to determine credit risk, says Craig Watts, spokesman for Fair Isaac.
Fair Isaac Corp., maker of the popular FICO credit score used by most lenders, says its new scoring model will do a better job predicting the likelihood of a borrower defaulting on a loan. For one thing, the new model, dubbed FICO 08, will be more forgiving of occasional slips by consumers, but will take a harder line on repeat offenders. Fair Isaac predicts its new system will help lenders reduce default rates on their consumer credit by between 5% and 15%
As an added fact, the 3 major credit bureaus have banned together to create their own credit score called Vantage Score Solutions LLC. In response, FICO has placed a lawsuit against them and is currently being fought in court. Could we be using Vantage Score vs. FICO score in the near future?!?
•(+) Situations where scores will rise, (-) Situations where scores will fall
(+) Occasional mistakes
(+)Being 90 days late on payments on one account, while other credit accounts are in good standing
(+) Multiple inquiries have less of a negative effect
(+) Having a mix of credit types, like having a credit card, mortgage, and auto loan at the same time(-) Consumers who consistently mess up(-) Spending near the limit of total available credit
(-) 90 days late and you have other delinquent accounts
(-) Being an authorized user on someone else's account with good credit will no longer help your score