Will FICO® 8 Hurt You or Help You?

The new FICO® 8 Score is fast becoming the new standard. According to a release on July 27, it has now been adopted by more than 2,500 banks and other financial institutions. Forecasts are that it will improve credit risk predictions by up to 15% over earlier FICO Score models – and result in millions more in profit to credit issuers.

But is it good news or bad news for you as a consumer?

Under the new scoring model, small slip-ups will carry much less weight than in the past. This model recognizes that one late payment could be the result of events beyond the consumer’s control – such as an accident or illness.

However, multiple late payments will now carry a heavier penalty than in the past.

FICO 8 also ignores debts and public record items that have an original balance of $100 or less. This is good news for consumers who are in dispute over a small bill. It will no longer be necessary for a consumer grit his teeth and pay a small bill he feels he does not owe in order to get a better interest rate on a car or home loan.

Another change is that the penalty for using too much of your credit lines will be higher. We’ve long said that the best plan for keeping high scores is to use 30% or less of your available credit. This now becomes even more important. A maxed out card will cost more points under FICO 8.

The new score also deals differently with the “piggybacking” issue that has come under fire in the past. At one time, parents or other family members could add someone as an authorized user on a credit card and that person’s credit score would receive the benefit of the parent’s good credit rating.

Then opportunists saw a money-making opportunity and began selling “authorized use” on seasoned credit card accounts. It became a business in itself. In reaction to that, FICO scores stopped recognizing authorized use at all.

Now, under the new model, authorized users will benefit, but only if they have a legitimate relationship to the primary cardholder.

Consumers may well be confused when reading their reports, as each of the credit reporting agencies is giving it a different brand name. TransUnion calls it Classic 08, Equifax calls it Beacon 09, and Experian calls it the Experian/FICO Risk Model v08.

Right now the FICO 8 model is not available for sale to consumers, but that may change within the next few months.


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Disclaimer: This information has been compiled and provided by CreditScoreQuick.com as an informational service to the public. While our goal is to provide information that will help consumers to manage their credit and debt, this information should not be considered legal advice. Such advice must be specific to the various circumstances of each person's situation, and the general information provided on these pages should not be used as a substitute for the advice of competent legal counsel.