FICO to Roll Out New Credit Scoring Model - FICO 08

As reported by Mortgage News Daily, FICO is planning on releasing it's new credit scoring product sooner than planned. FICO states that this new system will help reduce default rates on mortgages and other consumer loans.

The key points:

Consumers will not be hit as hard for an occasional, or one time missed payment provided the rest of their bills are paid in a timely manner.

As a consumer and mortgage broker, I like this one. While I don't advocate that making late payments is a good thing, once in while, someone with otherwise good credit could miss a payment for some odd reason. With the current model, this could lower their score considerably. I once did a refinance , and during the loan process, the borrower accidentally missed a payment on a Home Depot card...the account had been paid on time for 99 months. The score dropped 60 points since the delinquency was recent, and when the lender re-pulled the credit, they no longer qualified for the loan.

Another item that will be addressed is the authorized user. In the past, someone with an account in good standing could add an authorized user (spouse or child, for example) and that would almost immediately boost the score of the authorized user.

Apparently, there was a practice of folks adding authorized users for a fee, so borrowers could increase their credit scores. Not withstanding the moral implications of this, these folks are able to charge a fee for their "service". Little risk to them as the new "authorized user" never had access to the account or account number.After the deed was done, they could remove the borrower from the account, and add another one..for a fee, of course.

Lenders became concerned about this a while ago, and would not consider those tradelines in evaluating a loan approval. Bottom line is, if you want to build your credit, you're going to have to do it on your own.

However...."The new version of FICO has prompted anger over the elimination of the authorized user category claiming that it will unduly penalize women who are more likely to have that status on their husbands' card than vice versa."

Another item: Those with a mix of revolving and installment debt will have a higher score than those with revolving debt only. So it can show you can manage a car payment and credit debt, your score will be higher