The FICO score, a number many lenders use to determine every consumer's credit worthiness, has been updated to help better predict who is an acceptable credit risk.
FICO is the acronym for Fair Isaac Corp., a publicly traded company that created the best-known and most widely used credit score model in the country. The score is calculated with information from a consumer's credit files, and lenders may use a low score to deny credit, charge higher interest rates, demand more collateral or require extensive income and asset verification.
"FICO 08 is a good thing for lenders," said Craig Watts, Fair Isaac spokesman. "It's a more predictable score, which is the kind of tool that lenders are looking for to help them get out of their credit morass. As far as consumers go, the same things that get you a good score today will get you a good score tomorrow when lenders start using these new scores."
In general, consumers with long-standing good credit histories, including timely repayment, will score slightly higher, while the scores for people with "blemished" credit histories will shift lower, he said.
"It's easier on people who only slip up once in a while and harder on people who slip up all the time," said Michael Sullivan, director of education at Take Charge America, a Valley-based nonprofit credit counseling agency. "It's just one more hurdle that consumers have, one more thing to be careful about now that credit scores have become such an important part of life."
The new score does come at a difficult time when many consumers' credit scores are plummeting as banks hike interest rates on existing credit card accounts, he said.
The new score will be more sensitive toward high credit usage in that consumers may receive fewer points if the balance on one or more credit card accounts is near the account limit, Watts said.
The score will provide more flexibility regarding missed payments, he said. If a borrower is behind on one account, the FICO 08 score will drop less if the borrower also has a number of other credit accounts in good standing. However, multiple delinquencies will cause the score to drop further, Watts said.
Also, the score will penalize a single serious delinquency less if it occurred two or more years ago on an otherwise unblemished credit history, Watts said. However, it will drop further if a credit report shows both a serious delinquency and a pattern of multiple prior delinquencies.