FICO debuts its new credit scoring method
Filed under: Debt
Thursday, Fair Isaac, the developer of FICO scores, unveiled its "new-and-improved FICO score," according to The Wall Street Journal (subscription required). It's a new way of coming up with your credit score, and TransUnion LLC, one of the three major credit bureaus, is right out the gate in using the method. Equifax should begin using it in the second quarter of this year, and Experian Group Ltd, reports The Wall Street Journal, hasn't announced when or if it will use it "due to pending litigation with Fair Isaac."Let them squabble. The important question is: What does this mean for all of us?The numbers --300 to 850 -- won't change. But the new way of developing the score is supposed to be more efficient at predicting borrower defaults, says the WSJ, and will "be more forgiving of one-time slip-ups and take a harder line on repeat offenders."
So if your credit score is in the toilet, maybe you should read something else. Really. Why spoil your day?
Credit experts have known this was coming for awhile, which has been why it's been nicknamed "FICO 08" instead of FICO 09. In any case, according to Kiplinger.com, the new score should reduce the risk of defaults and improve the predictability of defaults by 5-15%.
If you have a good credit score but have missed a payment or two, but otherwise, are in terrific shape, you eventually might see your credit score climb by more than 20 points, which, hey, is awesome and congratulations. If you have really lousy credit, you may see it drop by 20 points. (See, I told you. Read something else.)
So why might your score go down? For starters, it used to be that if you were using more than 50% of your credit limit, then your score started going down. Now it starts going down in some cases if you're using as low as 10%, though 30% seems to be the new limit to aim for. Yes, it's a fun new rule, isn't it? I'm thinking that people working at a credit card company probably aren't invited to a lot of parties these days.
But, again, these changes will take awhile to be instituted, so if you have less-than-stellar credit but are working diligently to regain a better standing with the credit scorers, the new changes may not hurt you too much, and depending how successful and swift you are in improving your score, FICO 08 could make your credit score look even better in 2009.
Geoff Williams is a freelance journalist who occasionally writes about credit cards for CreditCards.com. He also is the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale).
Reader Comments (Page 1 of 1)
1-29-2009 @ 2:31PM
Robert said...
The fix is in - again. Another way to increase people's interest rate I'm sure. - again.
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1-29-2009 @ 2:47PM
Rich said...
Another change which unfairly targets responsible users of credit, restricting the ability for economic stimulus to work as lenders will not grant credit based on another round of unwarranted drops in FICO scores.
How about this - when the banks and credit card companies lower your credit limit, it increases the % of credit you are using, further impacting your credit score.
NICE JOB!!
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1-29-2009 @ 4:23PM
Sue said...
FYI - A little note that most people do not know about. What about the insane rule that says everytime your credit is run by a potential lender - your score goes down by 10 or 20 points. Everytime you check your own credit - your score goes down by 10 - 20 points. I feel that a credit score should be based on your credit transactions/history - not on your attempt to watch for fraud or apply for a loan.
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2-03-2009 @ 3:38PM
Thierry said...
Your score does not go down when you check your own credit.
1-30-2009 @ 12:04AM
BoostMyScore.NET said...
Thankfully you are wrong about the "piggybacking" thing not working for spouses. It sure would have been nice if you had actually done your homework before posting your blog of incorrect assumptions, thus perpetuating the spread of misinformation, Mr. Williams. Piggybacking will continue to work for everyone, related or not. Check your facts before you publish. You can do so by clicking this link:
http://www.creditcards.com/credit-card-news/piggybacking-fico-credit-score-authorized-user-1265.php
Reply
1-30-2009 @ 12:12AM
BoostMyScore.NET said...
You can see here that credit piggybacking will continue to benefit everyone...
http://www.creditcards.com/credit-card-news/piggybacking-fico-credit-score-authorized-user-1265.php
and
http://www.boostmyscore.net/documents/CongressionalCommitteonFinancialServices-AuthorizedUserTradelinesLiveOn.pdf
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1-30-2009 @ 8:19AM
gwilliams1 said...
To BoostMyScore: Thanks for the comments. You're right. At the last minute, those behind FICO' 08 decided to keep the practice of piggybacking. It had been widely reported that piggybacking wasn't going to be used (as was mentioned in the article that you linked to). I appreciate you setting the record straight, and I've fixed the article.
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1-30-2009 @ 12:53PM
Lara said...
It is terrifying how bad the economy is getting... My husband lost his job over 6 months ago. I still have mine, would love to go back to school but can't afford it. Geez , I am able to make some extra money online by taking surveys for big companies - I'm not getting rich but every little bit helps http://www.makemoneybytakingsurveys.com Make Money Taking Surveys
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1-30-2009 @ 2:23PM
lou said...
I really don't much care what my credit score is. I don't want to purchase anything I can't pay cash for ever again. They extend me credit on a credit card, punish me if I use it.Then they take my interest, increase it if possible, and then punish me by a bad credit score. They will make little or no profit off of me ever again.Who cares what my credit score is when I can't get a loan now anyways? I don't want a loan since my job could tank by the end of 2009. They have brain washed people into thinking they have to have good credit, and that they have to borrow money. Isn't that what got us into this mess already. Greedy, greedy bankers and too many sheep.
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1-30-2009 @ 5:30PM
shelly said...
How bout those little notices, that tell you your interest APR rate is being increased from 12% to 19% or higher. And if you choose to opt out, the bank shuts down your line of credit, and closes your account. This is being done by banks on a random basis to their card holders. Doesn't matter if you have a great credit score, never been late on a payment. Its the luck of the draw. One of my credit card banks, was recently purchased by another bank. I received a notice that my APR was going from 8.5% to 19% once the purchase of my current credit card issuing bank was finalized, and the new bank took over my current account. So, needless to say. I contacted the new bank and told them I would not be interested, in their change of terms to their 19% interest rate. So, I'd prefer to opt out. The nice person on the other end of the phone stated, If I opt out, my account would be closed and would not be able to be re-opened,and in opting out, I'm also refusing to agree with their card holder member agreement. So this would be reported to the credit reporting agencies, and most likely have a adverse effect on my credit score. Well, I for one don't like to be threatened. So, I calmly told the CSR to close my existing account. I was not interested in dealing with their new bank or a 19% APR. Anyway, By closing the account it froze my existing APR at the current 8% until paid off. However, the bank did report my request to close the account to all 3 credit reporting agency's. And it dropped my FICO score by 11 points.
So no matter if you decide to opt out, close the account yourself. But If you refuse to pay the banks 19% interest rate. The bank will make sure it dings your FICO score. I'm not sure if this is consumer fraud, or blackmail. But it should not be legal.
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2-01-2009 @ 10:22AM
Geckos said...
You should never close your account unless there is an annual fee - Having it open for a long period improves your credit score - better idea is to ask them to lower your credit limit to $500 and then cut the card in half
2-01-2009 @ 1:06AM
Glenda said...
GOD help us!!!!!!!!!!
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