For years FICO scoring has been the main tool lenders have used to determine credit worthiness of potential customers. But FICO is not only used in lending as insurers, utilities, and other services consider a consumer's FICO score when pricing or granting services. Fair Isaac Company, the company behind the FICO model has been under pressure from the government to change its model to allow more consumers to access credit and they have been testing a new model for some time in partnership with 12 credit card issuers.
Under the old model things like payment history for utilities, rent and cellphones were not considered as part of your FICO score. Under the new model they will. Additionally, the number of times you move will also play a factor in your score. This new model is expected to take effect on a national scale by the end of the year.
So what does this all mean? The answer to that question is still somewhat unclear. For those with an established credit history under the old model will a couple of late payments on a cellphone hurt? I know some people that know how credit scoring works will pay credit cards and other items that report on time and be late on electric, etc. if they have to knowing that it doesn't affect their credit. How about the college kid that moves each of the four years, will that now hurt his/her score? How will cell phones and electric bills be considered in the debt to income ratios if at all?
The good news is that the new scoring model can potentially open up credit access to approximately 53 million consumers that are now "unscorable" due to lack of traditional credit history. Potentially, it could especially help young buyers that have been reluctant to open credit cards and/or car loans and therefore have not built any type of payment history obtain financing. In my opinion a young adult that has not opened up credit cards or taken auto loans but has an unblemished rent and utility payment history is less of a lending risk than someone with a number of cards, etc.
Either way, this change is coming and for many people it could be a good thing. For those of us that are used to the traditional model we'll need to make adjustments. And for those that pay all of their bills on time anyway this won't really affect you at all.