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FICO 08 redefines bad credit score & good credit score - new credit scoring system

Fri Jan 4, 2008 03:01PM | By Tony

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Credit repair can be redefined with arrival of FICO 08 credit scoring system. FICO 08 is the newest credit score model being developed by Fair Isaac Corp., maker of the popular FICO credit score used by most lenders. By tweaking the existent algorithm, FICO 08 will supposedly do better job, predicting the likelihood of a borrower defaulting on a loan. It will be more forgiving of occasional late payments by consumers, but much harder on repeat offenders.

Fair Isaac predicts its new system will help lenders reduce default rates on their consumer credit by between 5% and 15%.

Sounds like three strikes and you are out. With all the mortgage defaults and foreclosures, and the signs of trouble in car loans and credit cards, lenders see very clear what's coming to them - many more delinquencies in virtually every type of consumer debt, and naturally looking for a saviour. So the FICO 08 should be the one, at least that is what Fair Isaac propagates.

Here are few known facts about this new credit scoring system:

The credit score range will stay within the existent range - roughly from 300 to 850. See the precise credit score range for each Credit Reporting Agency.

FICO 08 algorithm will still be defined by the same factors, including consumers level of credit indebtedness and payment histories, length of credit histories, number of recent credit openings and inquiries, and the type of credit used, to determine scores, but will interpret these factors differently and subsequently decrease or increase the credit scores.

FICO 08 will give more points to consumers who maintain a variety of credit types, such as revolving credit like credit cards, installment loans like school or auto loan, a mortgage, because it supposedly shows they can manage payments on different kinds of loans. On the other hand, the new scoring system penalizes to a greater degree borrowers who use a high percentage of their available credit.

FICO 08 also will differentiate much more among different borrowers who are at least 90 days late in making a loan payment, known as a serious delinquency. Traditionally, the loan seekers with derogatory credit records are grouped into one general sub prime category. FICO 08 will give a higher score to such borrowers if they also have a number of other credit accounts in good standing. And a consumer score will drop if he or she has multiple delinquent accounts.

This new credit scoring system faces competition from VantageScore which is supported by Experian, Equifax and TransUnion and being sued by Fair Isaac Corp for using unfair and anti competitive practices to harm the FICO brand. And whatever happened to NextGen FICO Scores?

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