I have been trying to keep updated with credit scoring and financing because it has a direct effect on the real estate market and, therefore, me. I found this great article by Leslie McFadden, Bankrate.com, written today about the new FICO 8 score...A VERY interesting read. Enjoy and share it with everyone you know.
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FICO announced today that more than 2,700 lenders are using its latest and greatest consumer credit scoring model known as the "FICO 8 Score." According to FICO's own research, its newest credit score improves credit risk prediction by as much as 15 percent over earlier generations. The score debuted in 2009, but the process of testing and validating a new scoring model takes varying amounts of time with different financial institutions.
"Some of the larger card issuers are running FICO 8," says Robert Duque-Ribeiro, vice president and general manager of scores at FICO, who could not say how many credit card issuers had adopted the new formula. "There's a very large one that has moved completely to it."
How FICO 8 differs from previous versions
Here are a few key differences between FICO 8 and previous generations of the FICO Score:
Payments: FICO 8 is more lenient toward the rare missed payment. A "one-time mis-happening in terms of delinquency" doesn't penalize the score as much compared to previous models, says Duque-Ribeiro. "The flip side is that if that happens quite often they actually get penalized more than in the prior versions."
In addition, FICO 8 ignores small debts in collections and public record items that have an original balance of less than $100.
Credit usage: The new FICO score is more sensitive to high credit usage than earlier models. In other words, if you max out your cards, your FICO score will lose more points than it would have in the past.
Authorized users: If you're an authorized user and don't have a legitimate relationship to the primary cardholder, such as husband and wife, your FICO score might not benefit. FICO 8 minimizes any score inflation caused by the controversial practice of "piggybacking" as an authorized user on the seasoned credit account of a stranger. Duque-Ribeiro says that FICO 8 uses "a methodology that allows us to be still compliant from a regulatory perspective, but actually make sure that the folks that are trying to do that don't get the benefits of lining up on the back of a consumer's good credit."
Not everything about the model is different. It has the same 300 to 850 score range, loan shopping inquiry treatment, minimum scoring criteria and score reason codes (top factors that lowered the credit score), according to myFICO.com. The five factors that make up the score remain important, so it's still crucial to pay bills on time, keep credit card balances low and apply for new credit only when needed.
When can you buy FICO 8 scores?
FICO 8 scores are currently available to lenders through Equifax, Experian and TransUnion, but aren't currently sold to consumers. The actual brand names at each credit reporting agency are FICO Risk Score, Classic 08 from TransUnion, Beacon 09 from Equifax, and Experian/FICO Risk Model v08 from Experian.
MyFICO.com currently sells FICO scores to consumers that most lenders are using, from scoring models that date back to 2004. That could change soon as more lenders adopt FICO 8. "It's probably a question of a few months before we'll make it available to the consumer," Duque-Ribeiro says.
In the future, credit card issuers may have to disclose free credit scores to consumers when compelled to do so by new federal regulations. Consumers would receive the score actually used, even if that score happens to be one not currently sold to the public, such as the FICO 8 score.
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