New Fico Model

Posted by: Meredith K. | Jan 04,2008


Several weeks back, I wrote about the Vantage Score, a new credit scoring model developed by the top three credit bureaus: Experian, Equifax, and TransUnion.  There was thought that it could eventually replace the Fico score because it’s easier to read and there are no discrepancies between each bureau.  As it stands now you could have a dozen or more point difference between scores at the different bureaus.  

When questioned about the prospect of the Vantage Score taking over the Fico, people at Fair Isaac generally replied with, “We’re not worried.”  And here’s why.  Fico is revising its credit scoring model, aptly called Fico 08, which sort of sounds like the Fico score for the Web 2.0 generation.  There’s some very good news about the new system, changes that will specifically help young borrowers.  The new Fico score will not dock a person nearly as much for minor defaults, such as one missed payment.  Instead, the new Fico score will weight borrowers who have been repeatedly delinquent.  

As I wrote about this week, college students in particular have a habit of being pretty sloppy with their bill payments.  They may even have money in the bank but a credit card bill gets swept under the rug – literally.  The new Fico model will not penalize borrowers for these small infractions, but will penalize those who have been delinquent again and again, and deservedly so.  

This is very good news and makes me want to scream it from the rooftops.  Frankly, I’ve felt that people’s Fico scores have been plummeting too much due to minor delinquencies.  It’s similar to people’s APR’s going to 30% for one missed payment.  As a result borrowers are getting pummeled from two sides.  This new model helps out lenders too because they can get a more accurate risk assessment for each borrower.  

What may result is that your credit score could go up after Fico 08 goes into full effect.  Then again, if you’ve been severely delinquent, your score could drop even further.  

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