Fico Score to Get a Makeover

Fair Isaac Corp., the creator of the all-powerful Fico score used by 90 percent of the top 100 banks, is launching its new model known as “FICO 08”, which should be available in early spring.

The new, improved credit scoring system promises to be more forgiving to consumers who make the occasional slip-up, and more punishing to repeat offenders.

The company believes the new system will reduce default rates on consumer credit by 5 to 15 percent, key at a time when credit markets continue to feel the effects of the mortgage bust.

Supposedly, consumers who are considered low-risk will score better with the new FICO version, and consumers who are high-risk will score lower, but most will see their credit scores go up.

Among the changes, FICO 08 will benefit consumers who maintain a variety of credit lines, such as credit cards, mortgages, and auto loans, because it proves they can manage payments on various types and sizes of loans.

But it’s important to note that the new scoring system penalizes to a greater degree borrowers who use a high percentage of their available credit, so make sure you keep outstanding balances low.

The new scoring system will also draw a greater distinction between borrowers with a serious delinquency, that which is 90 or more days late.

Fair Isaac says the new model will yield higher scores for borrowers with a delinquency that have a large number of accounts in good standing, but will penalize those more severely who have multiple derogatory accounts (collection, charge off).

That should help consumers who have overall good credit (what is a good credit score), but one nagging account that in the past dragged down their score tremendously.

FICO 08 also plans to stamp out credit piggybacking, though seasoned tradeline selling sites are already working to overcome this hurdle.

The unfortunate reality about credit scoring is that the minute these companies make changes, credit repair companies go straight to work looking for ways to manipulate the new models.

And this update will likely be no different.

Read more: How to raise your credit score.