After a number of delays, credit score creator FICO (formerly known as Fair Isaac) introduced its updated scoring model in late January 2009. That new credit scoring model -- known as FICO 08 -- is designed to more accurately predict consumer borrowing behavior, such as the likelihood that a borrower will be able to repay a loan.
In order to do that, FICO has re-weighted some of the key elements that go into the calculation of a consumer's credit score. Using scenarios provided by FICO, the following examples show what impact the new FICO 08 scoring model could have on the credit scores of similar borrowers who fall into one of three categories: higher-risk consumers, thin-file consumers who lack significant credit history and mainstream consumers.
Equifax, one of the three major U.S. credit bureaus, said the FICO 08 changes are reflected in its BEACON 09 credit scoring product, which was released in June 2009. That makes Equifax the second national credit reporting agency to offer FICO 08 scores. TransUnion made a similar announcement on January 29. However, most lenders still rely on earlier versions of the FICO score to make their lending decisions.
Click through the scenarios below to see how the existing credit scores of six imaginary, but archetypical people -- Jose and Alicia, Jennifer and Bill, and Isabel and Fred -- change under the FICO 08 model.