Keller Williams Realty of Northern Colorado

In August, a new version of the credit scoring model, called FICO 08, was released to our three major credit bureaus — Experian, TransUnion and Equifax. These modifications will likely raise FICO scores for consumers with a relatively good track record save for a few blemishes, while possibly lowering credit scores for consumers with habitually late payments. Some of the highlights of FICO 08:

For consumers with a relatively good track record: Small missed payments lingering in collections with original amounts of $100 or less will no longer do damage to your credit score. For example, if you missed paying one utility bill three years ago and otherwise have a clean record then your score will likely be less affected by the missed payment.

Penalties for “piggybacking”: The new system accounts for “piggybacking” techniques commonly used by credit-repair agencies to artificially improve a consumer’s credit score. What is “piggybacking”? Basicallly, a credit repair company has the consumer added to a stranger’s credit card account as a means to boost the consumer’s credit score. The stranger is paid in return. This is an artificial means of raising a consumer’s credit score and the new system can penalize a consumer for engaging in this technique.

For consumers that get close to their credit card limits: This new edition of the FICO scoring could end up lowering your FICO score.

Adoption of FICO 08: Fannie Mae and Freddie Mac have not yet adopted FICO 08, however, more than 400 lenders are now using or testing the new model.

If you have any questions about your credit score or the new FICO 08 system, we strongly recommend contacting your lender and/or financial advisor. Staying on top of your credit score is a critical component of your financial well-being.
Source: MSN Money, “The new math of FICO credit scores” by MarketWatch, pulled 9/9/09
http://articles.moneycentral.msn.com/Banking/YourCreditRating/the-new-math-of-FICO-credit-scores.aspx