FICO Rolling Out New Credit Scores

Banks and credit card companies are starting to be hit by charge-offs, and this is starting to prompt tighter lending standards. As this trend continues, it is no surprise that the FICO score is becoming more popular amongst lenders. It is becoming increasingly important as bad credit loans and offers begin to diminish in quantity.

Starting in 2009, Fair Isaac Company, the organization behind the FICO score, is rolling out its new formula for credit scores. This is an almost complete overhaul of the mathematics behind the credit scoring system. Technology and the prevalence of credit makes it easier to track consumers' credit habits, and the new FICO credit scores will take this into account. Consumers will now fall into 12 groups, rather than 10, and credit problems and issues will be ranked according to number and magnitude more specifically than before.

Kiplinger reports that many borrowers will find a dramatic shift in their FICO scores with new model:

But the company estimates that 40% to 50% of borrowers’ scores could go up or down by more than 20 points because of how the new model fine-tunes the variables it uses to evaluate consumers’ credit use behavior.