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FICO Scores Get a Makeover

body 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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Re: FICO Scores Get a Makeover

  • comment number 10
  • date 02-24-2009 05:05 PM
  • author michel8wall writes:
body I agree these banks are getting ridiculous. Why are we going to give more money to the greedy???? It makes no sense.

Let's all band together and write our congressmen and the president. You can go to www.whitehouse.gov . I wrote to the president & my congressmen on this issue and in all on the economy and I will continue to write them until I get the response I am looking for. It is going to take all of us.....to make our country a place to be proud of again.
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Re: FICO Scores Get a Makeover

  • comment number 11
  • date 02-24-2009 05:42 PM
  • author brianko722 writes:
body
While the items I read with genuine gladness about the altruistic and philanthropic ideas of forgiveness/not lowering one's credit score due to a late payment report, or a major credit report-related mess up, that would have otherwise resulted in being denied credit, denied employment, etc., under the previous credit score/reporting system, I cannot conscience the idea of making it a mark against anyone to "max-out" their card limits, especially in the current economic/unemployment crises, as well as beyond the point that we recover from this recession, and onward.
Such an idea serves to hinder and curtail consumer spending, and that is an exceptionally bad thing for the economy.
The credit card companies get more income from interest payments with higher balances, helping them to keep credit flowing, which in turn keeps the economy moving, and so in better shape overall.
Further, again, especially in the current economic/unemployment crises, many millions of people are finding themselves forced to rely on their credit cards just to scrape by and try to forestall, if not avert, being evicted/losing their homes, having their power shut off, be able to pay for basics like food, prescriptions and other essential medical care not otherwise covered, etc., to continue to support themselves and their children.
In addition, credit card companies offer zero-APR balance-transfer cards to move one's balances to to keep from paying the interest that’s accruing on their existing interest-bearing cards, thus reducing what they must pay back in the end, by eliminating, or at least reducing, the added amounts in interest payments. Such cards make it MORE likely consumers will be able to pay their cards back, instead of defaulting/declaring bankruptcy, thereby leaving credit card companies with nothing. Such cards are designed to transfer as much of one's other card balances to as will "fit" into the maximum limits of these zero-balance cards - to deliberately “max” them out - to help consumers. To penalize people by making it a mark against their credit status/score to have credit cards with balances higher than a mere 30% is unthinkable, not only in the current recession, but ever, especially when zero-APR balance transfer cards exist to take on other card balances to help consumers pay them off.
Make all credit, and all credit cards, HELPFUL to everyone - not only as millions are losing their jobs, and so their incomes, as well as the roofs over their heads, etc., EVERY DAY in this recession - but always.
All businesses need to be customer-friendly and compassionate as consumers struggle, and many are losing out, since as this happens to them, it hurts businesses in the end, and so is counter to businesses’, and the economy’s, best interests. So, do not add to everyone's woes by creating penalties to simply USE the credit cards at our disposal, regardless of how high their balances are, or are not! Leave their balances to us as being our business, and remain crystal clear that it is consumer spending that keeps investor confidence - and therefore the stock market - up, and keeps the economy moving and flowing, instead of hindering it. That is good for everyone, during this recession, and always.

Message Edited by brianko722 on 02-24-2009 05:52 PM
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Re: FICO Scores Get a Makeover

  • comment number 12
  • date 03-05-2009 01:07 PM
  • author Mr_Ribeye writes:
body All the more reason to pay cash for everything. If you don't have the funds to pay for something, don't buy it!! If you save up to by that car or house just think of the power that you can weld in the finance world. No doubt very little risk.
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Re: FICO Scores Get a Makeover

  • comment number 13
  • date 03-12-2009 09:04 PM
  • author Pooky writes:
body Paying off and closing accounts should be rewarded. That info is still listed on your credit files and should make you look responsible and not get a score lowered if you close them. Why keep opened unwanted accounts!!! The FICO system is unfair and nuts!
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