topic Re: FICO 08 in the news in General Credit Topics

FICO 08 in the news

Anonymous — Wed, 19 Dec 2007 13:44:15 GMT

From WSJ:

Default Lines: The New Math Of Credit Scores
By Jane J. Kim
Wall Street Journal , December 19, 2007

Fair Isaac's Revamped FICO Aims to Forgive Small Slips, Punish Repeat Offenders

The company that cooks up credit scores for millions of Americans is changing its recipe -- and that could affect how easily you get credit in the future.

Fair Isaac Corp., maker of the popular FICO credit score used by most lenders, says its new scoring model will do a better job predicting the likelihood of a borrower defaulting on a loan. For one thing, the new model, dubbed FICO 08, will be more forgiving of occasional slips by consumers, but will take a harder line on repeat offenders. Fair Isaac predicts its new system will help lenders reduce default rates on their consumer credit by between 5% and 15%.

The rollout of the new credit-scoring system comes at a time when lenders say they are eager for more-accurate measures of credit risk, in part because of rising loan defaults as subprime mortgages go bad and housing prices fall. And there are signs that delinquencies are creeping into other types of consumer debt, including auto loans, further prompting lenders to tighten up on credit.

The FICO score, which Fair Isaac says is used by 90% of the 100 largest banks, and other similar scores hold sway over the lives of millions of people. Financial institutions use them to determine the granting and pricing of credit, insurance, cellphone usage and, in some cases, employment and utility services. Some consumer groups have raised concerns about whether credit scores are being used properly and whether they are valid measures of credit risk for some groups of consumers, especially minorities and lower-income individuals, says Travis Plunkett, the legislative director for the Consumer Federation of America.

Credit scores, which are calculated using proprietary models, also are criticized for a lack of transparency. "This is a product, per se, but it's a product that has inordinate influence on the financial lives of hundreds of millions of Americans," says Mr. Plunkett. Fair Isaac, based in Minneapolis, says it believes it does a good job of explaining the factors that go into calculating the FICO score and in guiding consumers on how to manage their scores.

Consumers could start seeing the new FICO scores by the spring, though some lenders may take additional time to test the system to see how it works with their business and loan portfolios. Fair Isaac, which last revamped its scoring model earlier this decade, says it is accelerating its FICO 08 rollout, partly in response to lenders' demand for better risk-management tools.

The latest version of the FICO score will largely look and feel the same to consumers and lenders. Scores will still range from 300 to 850 -- the higher the better -- and the model will continue to look at the same factors, including consumers' level of credit indebtedness and payment histories, length of credit histories, number of recent credit openings and inquiries, and the type of credit used, to determine scores.

But the new model will more finely slice and dice the information in consumers' credit files to do a better job of separating the "good risks" from the "bad risks," particularly for subprime borrowers; those with "thin," or young, credit files; or consumers who are actively seeking new credit. "Those are the communities that lenders are most interested in" to determine credit risk, says Craig Watts, spokesman for Fair Isaac.

"Consumers who are low risk will score better with the new FICO version, and consumers who are high risk will score lower," says John Ulzheimer, president of consumer education for Credit.com, a personal-finance Web site. Higher-risk borrowers may find it tougher to get credit, while those with less-risky profiles -- though they may have gotten approved for credit accounts in the past -- will start to get better deals from lenders, he says.

Two people with the same FICO score currently could see their scores diverge under the new system. One possible reason: FICO 08 gives more points to consumers who maintain a variety of credit types, such as credit cards, a mortgage and auto loan, because it shows they can manage payments on different kinds of loans. On the other hand, the new scoring system penalizes to a greater degree borrowers who use a high percentage of their available credit.

FICO 08 also will draw greater distinctions among different borrowers who are at least 90 days late in making a loan payment, known as a serious delinquency. Traditionally, many credit-scoring models grouped subprime consumers into one general category. But Fair Isaac says its new model will give a higher score to a borrower in arrears if they also have a number of other credit accounts in good standing. Conversely, a person's score could drop if he or she has multiple delinquent accounts.

"Overall, more consumers will see their FICO scores go up slightly than will see their scores drop," says Tom Quinn, vice president of global scoring solutions for Fair Isaac.

Despite the new scoring model, consumers still have to make sure the information in their credit reports, which Fair Isaac relies on to come up with its score, is accurate. If consumers feel their FICO score is unfair, they would have to go to the individual credit bureaus, Experian Group Ltd., TransUnion LLC and Equifax Inc., for a copy of their credit report on file and look for any errors or missing information. If there are any, they would have to contact the credit bureau or the financial institutions to dispute those errors.

FICO 08 also aims to curtail the growing business of allowing people to polish their credit by "piggybacking" on someone else's good credit history. In recent years, credit-repair Web sites have sprung up that arrange for subprime consumers to boost their scores by becoming authorized users on accounts held by strangers with better credit. When scoring a consumer, FICO 08 won't take into consideration credit-card accounts for which that person is an authorized user. But the move also will hurt legitimate users: People who give a credit card to a child or a spouse as an authorized user to help boost their credit score.

FICO 08 is likely to face some competition from VantageScore Solutions LLC of Stamford, Conn., a joint venture of the three credit bureaus that was rolled out in 2006. Fair Isaac has sued VantageScore and the three bureaus, accusing them of using unfair and anticompetitive practices to harm the FICO brand. Recently, Equifax linked the suit with the launch of FICO 08. The company has said it wouldn't move forward with FICO 08 and that its relationship with Fair Isaac remains "strained" until the lawsuit is resolved, says David Rubinger, Equifax spokesman. The new FICO model has already been distributed to Experian, which is in the process of implementing it, while TransUnion expects to have the scoring model available for lenders to test during the second quarter of 2008. Fair Isaac says its intention is to provide the formula to all three credit-reporting agencies.

---

Keeping Score 
 
  A new FICO model could affect your credit score. Here's what to expect: 
 
  -- Authorized users of another person's credit card may see their scores 
decline. 
 
  -- Consumers with serious delinquencies may see their scores improve if 
they have other accounts in good standing.

Re: FICO 08 in the news

Anonymous — Wed, 19 Dec 2007 16:02:05 GMT

Yes! This is the kind of info I've been seeking ever since I first heard about FICO08.

Thanks so much scoppe for posting the article.

Re: FICO 08 in the news

Anonymous — Wed, 19 Dec 2007 16:22:26 GMT

Well I guess I can hange up trying to get to the 700 club looks like I am going back to the lower 500's or upper 400's again. Just my luck.

Re: FICO 08 in the news

Anonymous — Wed, 19 Dec 2007 16:31:20 GMT

nikkoslilmouse wrote:

Well I guess I can hange up trying to get to the 700 club looks like I am going back to the lower 500's or upper 400's again. Just my luck.

My advice, FWIW:

Forget about the whole AU flap. The media have had a field day with this issue. They love the doom and gloom approach of telling everyone their scores will go down.

Just concentrate on improving your credit using all the methods we discuss here!

Re: FICO 08 in the news

Anonymous — Wed, 19 Dec 2007 16:38:52 GMT

Exactly masdeocho. We can only control what we can control.

Re: FICO 08 in the news

Anonymous — Wed, 19 Dec 2007 16:50:02 GMT

I am trying I had done so well but now I am back where I started. I had all the Collections on our reports paid off and removed. I got us new CC and Auto loans. Now I find 3 more CO on my report. All I had before was Presidio which was due to fall off in 2008 by the way they turned it over to MCM I think it is and now they are on my report looking new. By the way I disputed because I have never received anything from them in writing. I am an AU on my husbands Hooters card but its new so no big deal and the only reason for this is because I am the only one who sends out the payments for our bills.

Re: FICO 08 in the news

Anonymous — Wed, 19 Dec 2007 16:56:43 GMT

nikko, what are your(nikko's) FICO scores like? I'd suggest that you get a few cc's on your own, but that's only my opinion. Take it with a grain of salt.

Perhaps the reason they were put back on your CR is BECAUSE you disputed them(just my opinion, once again).

I'm sure others will chime in shortly with their thoughts.

Re: FICO 08 in the news

Anonymous — Wed, 19 Dec 2007 17:11:42 GMT

Thank you for your input. I can use alot of help again. The Collections that were removed were ones I paid in full and they had them removed. The 3 new ones are more hospital bills I was not aware of. I have a letter from the hospital stating that my balance with them is -0- and that is who 2 of the Collections are with. now it looks like fico is going to change things. I can not get any other CC as I have a ton of Inquiries on my report. I write down everyone I apply with and can only count for 13 of the 50 and quite a few of them used my moms address and several have used previous addresses so I know they are not mine.

Re: FICO 08 in the news

Anonymous — Wed, 19 Dec 2007 17:48:49 GMT

Two people with the same FICO score currently could see their scores diverge under the new system. One possible reason: FICO 08 gives more points to consumers who maintain a variety of credit types, such as credit cards, a mortgage and auto loan, because it shows they can manage payments on different kinds of loans. On the other hand, the new scoring system penalizes to a greater degree borrowers who use a high percentage of their available credit.

That reinforces my belief that if you have an auto loan with a bad interest rate that you want to pay off early, you're better off paying everything except for $100 so that it stays open and active.

Re: FICO 08 in the news

Anonymous — Wed, 19 Dec 2007 18:28:08 GMT

I AM so glad I just saw this...I was just going to pay off my car!

SO, what/how do you recommend? That will only keep it open for one month - should I pay it down to where there may be $200 remaining???

THANKS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Re: FICO 08 in the news

Anonymous — Wed, 19 Dec 2007 18:46:19 GMT

ahhhhh, ok I understand now. My bad.

Does the hospital still own the accounts? If so you can start negotiating with them for PFD of the baddies.

And believe you me, once they collections are gone, and have had a few months to report your scores WILL rise, based on those actions alone.

50!!?? Oh dear. Are you saying that, of the 50 inq's on your CR, you can only account for 13 of them?? Oh my. That would scare the bajibeers out of me!

In this case I'd dispute the 37 as NOT MINE! Not to worry you, but I'd be concerned about why and how they got there to begin with. But that's only me.....I'm an alarmist, but I'm careful.

I hope others will comment on this.

Good luck to you dear.

Re: FICO 08 in the news

Anonymous — Wed, 19 Dec 2007 18:58:01 GMT

I have a fraud alert on my CR's because I had joined the Disney Club to buy movies and one of their employees sold my CC and Personal information. Well I have a letter from them and sent copies to all 3 CB but they still just let people pull it. I am with a CU now and have just spoke to them about getting help to pay off the collections and CC all into one. She told me to fax over the app and she would see if their CC or Loan would work the best for me and she also mentioned refieing our car loan to a lower intrest rate as well. Man they are great. I hope she can help me.

Re: FICO 08 in the news

Anonymous — Wed, 19 Dec 2007 20:30:58 GMT

beach123 wrote:
I AM so glad I just saw this...I was just going to pay off my car!

SO, what/how do you recommend? That will only keep it open for one month - should I pay it down to where there may be $200 remaining???

THANKS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

When my GF pre-paid $5K last month, her statement said "next paid due December 2008".

Her last payment is supposed to be on December 2009. So if she pays down everything except the $100, then she can just pay that down two years from now (and not make any interim payments). She'd just have the interest accumulate on the $100.

Re: FICO 08 in the news

Anonymous — Wed, 19 Dec 2007 23:19:17 GMT

"FICO 08 is likely to face some competition from VantageScore Solutions LLC of Stamford, Conn., a joint venture of the three credit bureaus that was rolled out in 2006."

This is the part that bothers me about the article. I really don't want to have to focus on 3 additional scores & if you factor in the "FICO Auto Enhanced Scores" that means we now have 9 different scores to worry about! I just started fixing my FICO scores & I don't want to worry about VantageScore now as well.

 

Re: FICO 08 in the news

Takunda1 — Thu, 20 Dec 2007 00:26:48 GMT

SanFranMatt wrote:

beach123 wrote:
I AM so glad I just saw this...I was just going to pay off my car!

SO, what/how do you recommend? That will only keep it open for one month - should I pay it down to where there may be $200 remaining???

THANKS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

When my GF pre-paid $5K last month, her statement said "next paid due December 2008".

Her last payment is supposed to be on December 2009. So if she pays down everything except the $100, then she can just pay that down two years from now (and not make any interim payments). She'd just have the interest accumulate on the $100.

No. If you miss your next payment you'll be charged a late fee. Most auto companies will allow you to pay up to 3 months max in advance. Remember keeping your account open when the company is not generating money from it is not worthwile for the company. Since the 5 k has already been paid, all there is to do is to make the last payment in Dec. Besides the auto loan info will still stay on your credit report for 10yrs after its paid off.

Re: FICO 08 in the news

Anonymous — Thu, 20 Dec 2007 00:46:58 GMT

Takunda1 wrote:

No. If you miss your next payment you'll be charged a late fee. Most auto companies will allow you to pay up to 3 months max in advance. Remember keeping your account open when the company is not generating money from it is not worthwile for the company. Since the 5 k has already been paid, all there is to do is to make the last payment in Dec. Besides the auto loan info will still stay on your credit report for 10yrs after its paid off.

I wonder if this varies by lender. She goes through Toyota Financial, and the website clearly says that the next payment is due in December 2008, meaning she pre-paid for a year.

Also, I've read several posts where people's score dropped right after paying off a car loan. While it still stays on for 10 years, I don't know that it still has the same positive effect if it is paid off.

Re: FICO 08 in the news

Anonymous — Thu, 20 Dec 2007 03:34:21 GMT

I took the plunge today & spoke with a reputable lender for me, and he told me he needs 12 months good credit (no lates, nothing); on 3 trade lines...if I were to pay off the car, it would NOT count...my problem is I have a lien on my CR and the IRS is refusing (or at least the biach I spoke to) to work with me at all, and to be honest, in figuring it out, I would end up paying off the assessed value, have another 5 years of interest, etc. so it would never end.

I'm playing it slowly and paying most of my auto loan off because it will save me a bunch of interest until I get the IRS figured out...the auto finance company already killed me to the tune of about $5.5k, but like clockwork, if I have to wait until 3 days past the DUE date (but within the GRACE period), they are calling me at 8 AM...can't wait to tell them to please send me the title, you'll never get business from many people because of your b.s.delaying payment posting, etc.