New FICO Credit Score Debuts

JANUARY 29, 2009
New FICO Credit Score Debuts
By JANE J. KIM
Wall Street Journal

Fair Isaac Corp. is rolling out its new-and-improved FICO score, but it's likely to take a while before consumers see how they stack up under the new system.

On Thursday, Fair Isaac and one of the three major credit bureaus, TransUnion LLC, will start offering the revamped score, dubbed "FICO 08," to lenders. Equifax Inc. is expected to follow in the second quarter, while Experian Group Ltd. declined to comment due to pending litigation with Fair Isaac.

The new score is supposed to do a better job of predicting borrower defaults, be more forgiving of one-time slipups and take a harder line on repeat offenders. The score, which will still range from 300 to 850 -- the higher, the better -- is fine-tuned to do a deeper analysis of subprime borrowers or those with "thin" or young credit histories, according to Fair Isaac. More consumers with accounts in good standing should also see their scores increase slightly, says Tom Quinn, vice president of global scoring solutions at Fair Isaac. Overall, Fair Isaac predicts FICO 08 will improve the accuracy of lending decisions by as much as 15%.

FICO 08 will still factor in credit-card accounts for authorized users, such as children or spouses. Fair Isaac had originally planned to exclude authorized users in order to curtail abuse by "credit repair" Web sites. Such sites arrange for people with poor credit to boost their scores by becoming authorized users on accounts held by strangers with better credit. But Fair Isaac tweaked its model in a way that will still help legitimate authorized users improve their credit scores -- although perhaps to a lesser extent than prior FICO versions would -- but would also protect lenders from people who were trying to game the scoring mechanism.

It could be months or even years before the score is widely available to consumers. Lenders typically do their own analysis on the score to see how it works with their business and loan portfolios before they start using it. Some mortgage lenders might not adopt the new score if it's not available through all three credit bureaus, says John Ulzheimer, president of consumer education at Credit.com.

The rollout comes at a time when more lenders have criticized FICO's ability to predict defaults. Fair Isaac says its score does what it's supposed to do. "What we're seeing in all of our analysis is that the model is doing what it's supposed to do, which is to rank-order risk," says Mr. Quinn.