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FICO Scores Get a Makeover
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 Just when you thought it was safe to close that old credit-card account... Fair Isaac & Co., the company behind the FICO scores that are a ubiquitous yardstick of creditworthiness in the lending industry and beyond, is rolling out some changes.
As Jane Kim reports in The Wall Street Journal, these changes will take months, if not years, to trickle down to the point where they have any meaningful impact on consumers.
Just this week Trans Union, one of the major credit-reporting bureaus, first announced that it is making the new scores, dubbed FICO 08, available to lenders. It is unclear when the other major bureaus (Experian and Equifax) will start offering the new scores—and until all three do so, chances are that most lenders will continue to opt for the standard FICO scores they know and love.
Although you won't feel the impact of FICO 08 for quite some time, it can't hurt to know the facts and be prepared. So here's a quick roundup of what's said to be changing (the actual formula is proprietary):
1. Maxing out your cards will cost you. And not just via exorbitant interest payments and over-the-limit fees. Experts suggest that with the new formula it will be more important than ever to keep your outstanding balance at around 30 percent of your total credit limit.
2. Collections less than $100 will be completely ignored. The fine for that Richard Simmons tape you never got around to returning won't prevent you from getting a mortgage.
3. Single transgressions will be forgiven. One gigantic slip-up won't bring you down if your credit history is pristine otherwise.
4. Good genes will be rewarded. You can't choose your family… but you can take advantage of their good credit. Through the practice known as "piggybacking," you will now be able to boost your own score simply by riding the coattails of a parent or spouse as an authorized user on his or her account.
One plus: The score range will remain 300 - 850, so this change won't be nearly as disorienting as when the College Board decided to "re-center" SAT scores in the mid-'90s. In this new world of credit-risk assessment you'll still need to shoot for a number in the mid 700s—at a minimum—to ensure yourself of approval and the best rates.
If you're a glutton for punishment and want even more information about FICO 08, check out Fair Isaac's newsletter.
What do you think of these changes? Tell us if this news will make you monitor your credit more closely.
Message Edited by Anthony_Catalano on 02-06-2009 03:29 PM
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