New Credit Scoring Model – FICO 08
Fair Isaac, the company that currently calculates credit scores, is rolling out a new scoring model this year called FICO 08 which is supposed to be more accurate in determining how much of a credit risk people are. The scores will still range from 300-850. FICO 08 will look at the same factors as before: types of credit, length of credit history, payment history, number of credit inquiries, amount of indebtedness, etc. But it will also take into account a few more factors and put more emphasis on some of the current factors.
People who have “thin” credit files, are close to their available credit limits, or do not have a variety of different types of credit (such as mortgages, car loans, installment loans, etc.) will see lower scores.
Another change will be the way it takes into account delinquent accounts. It will be more forgiving of one or two late payments, but it will hurt a person’s score even more if they have accounts that are more than 90 days delinquent or multiple delinquent accounts.
One of the biggest changes that will affect the most people is that “piggyback” accounts will no longer help a person’s credit. Over the past several years, as a way to improve their credit, people with bad credit or little credit have been adding themselves as authorized users on credit accounts of people with good credit in order to boost their credit scores. FICO 08 will no longer take into account those types of accounts. Spouses may be the people who are hurt the most by this change. Many spouses have credit accounts that are in both partner’s names. One person is the primary user and the other is an authorized user. The credit score of the person who is the authorized user will no longer take those accounts into consideration.
Experian has already begun to use FICO 08. Transunion and Equifax are expected to start using it later this year.
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