Monday, Feb. 2
Posted 2 p.m.
New FICO score rolls out
Bankrate reporter Leslie McFadden contributed this entry.
Fair Isaac, creator of the FICO credit score, and TransUnion, the Chicago-headquartered credit-reporting agency, announced Thursday that the bureau will offer the latest version of the FICO score to lenders immediately. Equifax is expected to make the score commercially available in the second quarter, while Experian has not indicated a release date.
Consumers won't be able to purchase their FICO 08 scores until lenders have adopted the new scoring model, which could take some time. In the past, smaller lenders have adopted newer versions of the score within months, but some of the larger lenders can take up to a year testing the score, says Ethan Dornhelm, principal scientist with Fair Isaac.
When purchasing their FICO score, consumers are not told which version was used to calculate their credit rating, so the switch will likely go unnoticed. Dornhelm contends, however, that myFICO.com attempts to offer consumers scores that most lenders are currently using.
The three major credit reporting agencies are a little behind the times. He says most lenders are using the latest models available at the bureaus, which date back to 2004. Don't be fooled by the nickname, "FICO 08": It's the fifth version of the score since it was first introduced in 1989.
Consumers get the same scores available to lenders through Experian and Equifax, but scores sold to consumers through TransUnion get a version from 1998, Dornhelm says.
One of the significant changes FICO 08 brings is that it will minimize the impact of "piggybacking" on the credit score. Piggybacking is a controversial practice where people with poor credit ratings pay credit repair firms to add them as authorized users to an account of someone with great credit.
"Authorized-user information will across the board be factored into the FICO score," says Dornhelm. Yet, he says, authorized-user trade lines will get evaluated in a way that reduces artificial score inflation from piggybacking, without penalizing the scores of legitimate authorized users, such as spouses. The methodology is secret.
FICO 08 will also place more emphasis on mix of credit. Dornhelm says that someone with positive repayment history on both revolving and installment accounts is "likely to be more rewarded in FICO 08, relative to someone who has just a single type of credit."
He did not elaborate on whether people with a single type of credit, such as credit cards, would see their scores drop. Asked whether the percentages assigned to the five factors that make up a FICO score will change, he says FICO 08 will still place the most weight on debt levels and payment history. The percentages for the other factors that make up the FICO score may change, as they have not been recalculated. The score range itself, which runs from 300 to 850, will remain the same.
As for score changes, "a large population of scores is likely to stay very similar," he says.
FICO 08 will be more lenient toward minor credit blunders, but harsher on patterns of bad behavior. Fair Isaac estimates that the score will be 5 percent to 15 percent more predictive of credit risk.
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