ADVERTISEMENT

FICO score change to impact bad credit consumers

By

Fair Isaac Corp.'s recent decision to update the formula used to calculate its FICO credit score could impact consumers with bad credit.

Compare Credit Cards for Bad CreditThe FICO credit score is widely used by banks, credit card issuers, mortgage brokers, landlords and insurers to help conclude whether consumers looking to borrow money represent a good risk.

Fair Isaac says the changes will improve the accuracy of its credit scores by 5 percent to 15 percent, especially among borrowers with bad credit due to missed payments and those with little credit history, such as immigrants and young people.  These FICO score revisions will take effect in September 2007.

To rank consumers on a scale between 300 and 850, Fair Isaac looks at credit histories supplied by Equifax, Experian and TransUnion, the three major credit reporting agencies.  Consumers with higher credit scores often qualify for lower interest rates, while those with bad credit may pay higher rates or even be denied for a loan.

Despite the upcoming changes to how scores are calculated, Fair Isaac said that the scale will remain the same.

Fair Isaac noted that it has continually redeveloped the scoring model, with the latest changes unrelated to a surge in the number of consumers with bad credit who are defaulting on their mortgages, as some analysts have speculated.

Although the changes should improve accuracy, Fair Isaac explained that the majority of consumers will see little change to their credit scores.  While some consumers could get a slight boost to their scores under the new formula, others may suffer a small dip.

The primary reason for the change is to help lenders keep up with the ever-changing dynamics of consumer credit behavior, Fair Isaac noted, since small differences can be significant to lenders.

Published: May 21, 2007


Join the discussion
We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.




Follow Us


Updated: 10-01-2016


Weekly newsletter
Get the latest news, advice, articles and tips delivered to your inbox. It's FREE.


ADVERTISEMENT