FICO 08

Have you heard about FICO 08? Fair Isaac announced on July 31, 2008 that it will begin using a new credit-scoring model. This model will include “authorized user accounts when calculating someones FICO credit score.”

Fair Isaac estimates that about 50 million consumers are legitimate, authorized users on someone else’s credit card. Legitimate authorized users include parents, spouses and children. These authorized users must have an established relationship with the primary account holder.

When it was originally developed, FICO 08 didn’t plan on taking authorized user accounts into consideration. The reason was to prevent piggybacking on a complete stranger’s credit card and “artificially inflating one’s score.”

FICO scoring has included authorized user accounts into consideration in the past. However, these versions weren’t used for long because it offered an easy way for people with bad credit to raise their FICO scores. Too many people took advantage of the system and abused it in order to inflate their real scores.

Some lenders have complained about using FICO 08 saying that it would “inhibit compliance with the Federal Reserve’s Regulation B.” Regulation B requires lenders to consider the credit history of each account that is shared by spouses in assessing a married person’s credit risk.

Of course, Fair Isaac is keeping the exact formula a secret. However, the company does say that it has found a way to reduce piggybacking while restoring authorized-user accounts.

Tom Quinn, the vie president of global scoring solutions for Fair Isaac, said, “The FICO 08 scores of legitimate authorized users will now reflect the information on their credit reports about the account(s) on which they are authorized users.”

VantageScore, the competing model, never considered such a move.

Barrett Burns, president and CEO of VantageScore Solutions, said, “VantageScore excludes authorized-user trade lines, whether with good or bad payment histories, to ensure the risk assessment of a credit applicant represents the true credit risk of the prospect and not the originating borrower with whom the authorized trade line is associated.”

Fair Isaac 08 should come as good news to consumers who depend on authorized users to boost their credit score. However, it could be quite some time before consumers see what their FICO 08 score really is.

What do you think? Is FICO 08 good news or bad news?

This entry was posted on Wednesday, December 10th, 2008 at 9:30 pm and is filed under Credit Cards. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.