The FICO score is the most common credit score used by lenders to determine whether they will extend you credit. FICO is named after its developer, the Fair Isaac Company. In January, there were changes made in order to update the credit scoring model. This new model is called FICO 08 and is now used by TransUnion and Equifax, two of the three major credit bureaus. Experian has not adopted FICO 08 yet, and it is unknown whether they will in the future.
Before we look at the changes that have been made, let’s look at what FICO actually is. Your FICO score is a number that is somewhere between 300 and 850 with the latter being the best possible score you can achieve. This score is based on a number of different aspects when it comes to your credit history and is used to determine the likelihood of the timely payment of your debts.
While the weights of certain factors that affect your score are widely known, the exact formula for determining FICO scores is protected in order to prevent misrepresentation.
One change that was made in FICO 08 was to help decrease the effect of one or two late payments from an otherwise responsible person that has a history of good credit. Minor delinquencies that total less than $100 will not affect credit scores any longer, nor will single delinquencies that are older than two years.
Credit utilization has always been taken into consideration. This is the relationship between your credit limit and the actual amount of credit used. Using more than 30% of your total credit limit has always had a negative impact on your credit score, but with FICO 08 changes, this will have an even bigger impact.
Changes have also been made to prevent piggybacking of one debtor on another individual’s credit. For example, someone who had a bad credit score might have thought, ìI can just attach my name to my mom’s credit card to help raise my credit score.î The thought was that Mom’s good credit would help raise her child’s credit. However, under FICO 08 changes, credit will no longer be assigned to multiple parties authorized to use one card.
For the most part, the changes that came with FICO 08 are good. If you are a responsible spender and have good credit, it will only do good things for you.