The New Credit Score

With all of the worry regarding the recession, job loss, rising prices of food and medical costs, we know have something else to worry about. Currently we have 2 types of credit scores, the FICO credit score and the Vantage credit score, vantagescore.com. However, Fair Isaac sued the three credit bureaus in 2006, accusing them of unfair and uncompetitive practices that it said harmed the FICO brand regarding use of the Vantage score.

Starting in late January or early February 2009 a new credit score will replace the current FICO credit score called the FICO 08. The FICO 08 will have the same range of 300 to 850 as the current (classic) FICO score.

The new FICO 08 will be used by TransUnion in late January 2009. Equifax will begin using the new FICO 08 in spring 2009. Experian has not announced when the new score will be used Equifax because it is waiting for the lawsuit filed by Fair Isaac to be resolved.

Fair Isaac insists the new credit score formula was created as a result of a demand by consumers due to increasing defaults on mortgage payments and late payments to creditors. The FICO 08 claims to provide a better way of analyzing consumer risk and that the product will be used by most lenders to grant credit and to set interest rates and other loan terms. FICO scores are also factored into credit decisions by insurance underwriters, cell phone, and utility companies and are sometimes used by employers to evaluate prospective employees.

Fair Isaac says most consumers will see a slight increase in their FICO 08 scores compared with their current FICO score numbers, but others will see a drop in their score. Fair Isaac says the new formula will do a better job of predicting consumers who are a good risk and who are a bad risk, especially among consumers: with bad credit or short credit histories, who are actively seeking credit or who are listed as authorized users ("piggybacked" on others' good credit).

Fair Isaac said FICO 08 will be less harmful to those who have had a single serious credit setback, such as a charge-off or repossession, as long as their other active credit accounts are all in good standing. Having a "moderate amount" of credit inquiries on your credit reports won't be as harmful to consumers under the new formula. No one knows what is considered a "moderate amount". However, consumers with several delinquent accounts may experience a drop in their credit score.