A new credit score is on the horizon for all of us, according to Fair Isaac Corp., the makers of the FICO score so many lenders currently use.  In an effort to make credit reporting more uniform and fair, they are introducing FICO 08.  The new system is said to be more forgiving of the late payment that may have been made by mistake, but in turn will be more harsh on repeat offenders.

Lenders in today’s market are more eager to find ways to help accurately portray a borrower’s risk and will be glad to see this new model being used.  They will, however, wait for a certain amount of time before jumping on the band wagon.  They want to make sure that the new scoring procedure will be fair and consistent before using it.  The new system has already been given to Experian, one of the three major credit bureaus who is currently implementing the new program.  Fair Isaac’s intention is to distribute the plan to all three bureaus.  TransUnion will have a model ready for testing by the end of the second quarter of 2008. 

A major change that this model of scoring will make is the elimination of “piggybacking” which is currently largely in use by credit repair companies.  Piggybacking is the term for placing a borrower on someone else’s credit card that has a good payment history as an authorized user in order to boost their score.  The new model of credit scoring will limit the impact that an account stipulated as an authorized user will have on the credit score.  This has it’s good and bad points.  The good is it will stop credit repair agencies from piggybacking onto an unsuspecting consumer.  However, the bad is that for any parent trying to help their child establish a credit history, this will no longer work.   You will now have to add your child as a co-borrower on the account, which will enable them to have all access to your account.  This is not a bad thing, but their credit will be used to establish the account, so there is room for the creditor’s to say no, so it will change your ability to help your child establish their credit.

Two people in basically the same credit situation could see their scores go on different paths on the new plan due to the diversity of their credit.  As I have stated before, diversity of credit is a great thing.  (See my post on Credit Score Breakdown) The new model of credit scoring will now be putting more emphasis on seeing the diversity of a borrower.  Also, if a borrower falls behind on one account but maintains the others on their credit, the hit to their score should be much lower with the implementation of the new plan.  As with any new plan, there are benefits to some and a hinderance to others.  Overall the plan seems to be a step in the right direction to consistency among credit scores.

Although this new credit scoring plan is currently being implemented, it will be the end of the year before it is in widespread use.  So, be sure and get your credit in gear before the new scores hit.  For more information on repairing your credit, please see my post,  Credit Repair. 

Have a safe and wonderful 2008!