Fair Isaac Will Surprise You This Year

The practice of subprime mortgage lending is the reason why customers use credit cards as the main source of getting money, paying the biggest part of the incomes for the mortgage. No wonder that the habit of using a credit card every time when a customer needs money will lead to default one day.

Due to the increasing number of credit defaults and reduction in creditor's income, Fair Isaac Corporation introduces a new system of computing FICO credit score. In 2008 the company is going to put the new method at the disposal of the three major credit bureaus - Experian, TransUnion, and Equifax.

The main principles of the score computation, however, will remain the same as they are today. FICO 08 will still be widely used by numerous financial institutions, banks and credit card companies to evaluate the risk of lending money to consumers and to avoid potential losses. Checking the credit score before granting a credit is an implication of a trusted system. Moreover, it has become common for employers, insurance companies and landlords to rely on your FICO score when deciding whether or not they are willing to hire you, issue insurance to you, or rent you a home or apartment.

What will change in FICO 08?

The main innovation of the new method is that the system will lower one's credit score only if the customer has failed to pay on time on all of his or her open accounts. Traditionally customers have been penalized even if they have gone delinquent on one of their accounts. Now the system will evaluate a customer higher if he or she has got only one unsettled payment while all the other loans are in good standing. So, defaulting on one of your accounts does not suppose a fall in credit score anymore.

Another advantage of FICO 08 is that the system will be more loyal to customers who can manage several types of credit simultaneously. So a customer who has a number of credit cards, a car loan, and a mortgage, and doesn't go delinquent on most of them, is considered to be a good credit risk. On the other hand, subprime borrowers with low credit scores, little or bad credit history or those who are inquiring credit too frequently will weigh down the score.

Moreover, it will be more difficult for subprime customers and people with little or no credit history to improve their credit record or to build a new one. The new scoring method will not consider credit card accounts of an authorized user. That's why if a customer wants to improve his or her credit history using someone else's good credit, it will not work - on the contrary, it can hurt both.

Take care of all those changes to maintain your credit scores at a decent level. The other aspects of FICO - the amount of debt, payment history, length of credit history, types of credit used, and the number of recently opened accounts - will remain the same.