FICO Score – Part II
As promised, here is the part two of ‘understanding FICO Score’. This post will hopefully help you understand FICO 08 - the ‘new and improved’ credit score introduced by Fair Issac and Co. in order to help lenders predict loan defaults. The effectiveness of this new score has been predicted to be 5 to 15% more than its predecessor.
FICO 08 takes its roots from the older model in terms of fundamental elements used to evaluate and compare credit scores. These include a consumer’s payment history, amounts owed & percentage of credit being used. These are considered along with the length of credit history, number and type of accounts open and recently opened credit accounts and credit inquiries.
The difference arises in the percentage-weight (statistical weight to percent sum) given to each of these constituting factors. FICO 08 analyzes the information with more precision. According to Credit Technologies Inc.
“Each scoring model is divided into scorecards, (also referred to as Population Segments.) The current FICO model uses 10 score cards. FICO 08 adds 2 more, now dividing the population into 12 segments (eight for people with good credit and four for people with bad credit.) This could result in a slight change of a consumer’s credit score either up or down “
Other important differences between the two models include
- Higher weight-age to the mix of credit (credit card, revolving account, installments etc.) a consumer has. This obviously means that consumers who use a high percentage of their available credit will score high.
- Greater penalties and even lower scores than the original model for consumers with repeated delinquencies. FICO 08 will be even harder on consumers with serious delinquencies over 90 days old.
- Leniency for occasional slip-ups i.e. consumers with rare defaults.
- No longer will FICO 08 consider ‘authorized users’ in their credit score calculations. This is to prevent ‘piggybacking’ where a consumer with low credit score use to associate with another consumer in order to increase their credit score.
The revisions to the original FICO score have been much awaited especially in the light of increased delinquencies and declining recovery values. TransUnion is expected to begin using FICO 08 in the second quarter of 2008, while Experian is all set after the first quarter.
You can find Part 1 of this post here.
hmm… this really doesnt seem like a good move.. FICO08 may lead to nothing but lower scores and more distress for people
Secured Home Loans for UK Homeowners
Below is a list of good sites that offer or discuss secured loan - normally referred to as home loans