FAIR ISAAC is changing the playing field again, implementing it's latest version of credit scoring FICO 2008. And it doesn't appear that the change will be leveling it. The three major credit reporting agencies will be rolling out the new scoring system this year, with Transunion deploying it in January, Equifax in late spring and Experian at some later date.
The new FICO is touted to better predict the likelihood of a default on the part of the borrower. However, many of the changes appear to be designed to lower credit scores. FICO 2008 will place more emphasis on available credit, not just balances. So, even if you are not carrying a balance, if your credit line is reduced, your FICO score could be lowered. It appears, under the new scoring system, the more available credit you have, the better your score would be. (I remember having been rejected for an airline credit card in the early 90's because I had too much available credit even though most of it was unused). You will also have your credit score reduced by having only a few open and active credit accounts.
Supposedly, there are three changes that will benefit credit consumers.
- It will ignore debts gone into collection if original debt is less than $100
- It will not punish single credit set-backs, such as write offs or repossessions as long as all other accounts are in good standing
- It will continue to use some "authorized-user" information (although this is only a change from the fact that they were going to discard it entirely).
What will this do to the real estate and mortgage industry? I don't see anything good, at least for the first few months of implementation, especially since at any one time the credit agencies may be using different versions of FICO. That can only lead to confusion. Perhaps, in the long run it will lead to fewer defaults, but until it has rolled out completely, the only change that I can see is some tightening.
Personally, I know that my current FICO score is around 800. I am expecting it to drop just since I am using my cards less and my only installment loan will be paid off in April.
Do you know what your score is? You can get an estimated range here.
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