The Brainerd Real Estate Blog

New Credit Scoring System to Start Late Spring

FICO Speeds Rollout of New Product to Meet Lender Demands

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.

This article is courtesy of Mortgage News Daily on Monday February 25, 2008.

 Jason Walthers

Mortgage Advisor