San Diego real estate blog - Peter Toner

Fair Isaac Corp has announced that they will be giving a face lift to their infamous creation, the FICO score.  The newer version of the FICO score will be released this spring and will use the same range as its predecessor of 300 to 850, the higher your score the better.  This newer model has been nicknamed FICO 08 and it is estimated that it will help lenders reduce default rates by between 5%-15%.

The FICO is used more often then you think… it is used to determine whether or not you will be approved for cell phone accounts, utility services, insurance coverage, in some cases employment, auto loans, and most importantly the type of rates you will receive on a home loan.

FICO 08 proposes to be harder on those consumers who are repeat offenders of late payments and other risky behavior, and less severe on those who have made the occasional slip in their credit history. Its focus will be to determine what behavior is “low risk” and deserves a higher score, compared to what behavior is truly a “high risk” and deserves a lower score. A variety of credit types open with on time payments (auto, credit card, home loan) will be seen as “low risk”, the key is to not have credit balances up to their highest available amount.

On the flip side a “high risk” consumer would not have a variety of credit types open, for example multiple credit cards open with all cards maxed. Another feature of the new system will be to determine who accidently paid late by a few days compared to a consumer who hasn’t made a payment in 90 days.

In the end consumers that have had a relatively responsible credit history may see a credit score increase with the new system, whereas those who haven’t had as responsible of a history may see their scores decrease due to the more detailed scrutiny of their credit worthiness.