New Credit-Rating Model Focuses on Chronic Late-Payers

TransUnion LLC, one of the three major credit bureaus, will begin offering a new model for evaluating borrowers' ability to repay lenders. The new FICO model, called FICO 08, is trying to better predict which customers are  most likely to default on their loans.

Introduced by Fair Isaac, FICO 08 will distinguish chronic late-payers from consumers who have isolated late payments. It will assign lower scores to borrowers with high levels of revolving (credit card) debt. The system would seem to be a good thing for people who miss the occasional payment because their bill got buried under a pile of papers (and we know who we are, don't we?)

FICO 08 will also help prevent people from trying to improve their subprime credit score by becoming authorized users on the accounts of other people with better credit. (Some credit-repair Web sites have made this a practice.) The down side of this is that it also affects families where the spouse or child is signed on as an authorized user to help boost their credit. Think college students, for example.

Credit scores in FICO 08 will still range from 300 to 850; your score could go up or down under the new system, although it's estimated that overall, more people will see their credit rise rather than fall.

The other major credit-scoring companies will also incorporate the new scoring system. Equifax will introduce the FICO 08 score in June. Experian hasn't announced a date yet but is already at work to convert its system as well.

We've always said that your credit score is key to any loan. Now it's more critical than ever to clean up or consolidate credit card debt. See here for more details on cleaning up your credit.

Posted by

Joanne Helperin January 30, 2009, 8:53 AM

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