The real deal on FICO 08

Heard of FICO 08, the new credit scoring model from Fair Isaac that TransUnion started offering last week? I’m not surprised. Much is being made of the new system, but it might just be much ado about nothing.

The truth is, the new scoring model really only features one major change, according to John Ulzheimer, a credit score expert with “FICO 08 is basically just a normal redevelopment of the FICO score, which happens every one or two years,” he says. In September 2007, the company announced that it would no longer factor authorized user accounts into its credit scoring formulas. In other words, if you were, say, a 19-year-old authorized user on Dad’s credit card, that credit history would not boost or harm your own score. Since scammers had figured out ways to “piggyback” onto other people’s credit scores by becoming authorized users, FI wanted to take action.

FICO 08, however, essentially reverses that decision. Now, Fair Isaac claims it has figured out a (proprietary) method of minimizing the impact of authorized users added by an illegitimate source. In English? Your kid can still build up a credit history by becoming an authorized user on your credit card, but Fair Isaac will be able to weed out the scammers

The other tweaks are minor; Fair Isaac claims that it has fine-tuned its methods, especially in recognizing borrowers who might fall into the subprime category. If you already have a good credit history, your score might jump a notch or two. If it’s not so great, it might drop a bit.

But all this might be theoretical, since it might be years before lenders actually start using the FICO 08 model. Many won’t use it until all three credit bureaus start offering it, says Ulzheimer. And while Equifax is expected to adopt FICO 08 in the second quarter of this year, Experian won’t say if and when it will because of pending litigation against Fair Isaac.

The bottom line? If you want to boost your score, the methods haven’t changed. Take the steps below, and you’ll see your score rise over time, no matter what model your lender uses.

  • Pay your bills on time–over a long period of time.
  • Keep your debt-to-credit ratio low. Try to only spend about 10% of your credit limit.
  • Don’t open a bunch of new credit lines.

-Ismat Sarah Mangla

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