The most widely used credit scoring model, the FICO score from Fair Isaac Corp., is changing, probably beginning this Spring. FICO is used by 90 percent of the largest U.S. banks. Fair Isaac says the new score, “…will better predict the likelihood of a borrower defaulting on a loan. For one thing, the new model, dubbed FICO 08, will be more forgiving of occasional slips by consumers, but will take a harder line on repeat offenders,” according to the Charlotte Observer.
To lenders, this means a potential reduction in defaults by 5 to 15 percent.
For borrowers, it depends. Acording to John Ulzheimer, president of consumer education for Credit.com, “Consumers who are low risk will score better with the new FICO version, and consumers who are high risk will score lower…Higher-risk borrowers may find it tougher to get credit, while those with less-risky profiles — though they may have gotten approved for credit accounts in the past — will start to get better deals from lenders,” he says.
For bloggers, that leaves us to speculate whether we’d be seeing the current sub-prime mortgage mess today if the new scoring model had been in effect four or five years ago. My guess is, it would have made a big difference.