FICO 08 – The Algorithm Has Changed

FICO 08 – The Algorithm Has Changed

Beginning last year, Fair Isaac & Co. implemented changes in how your FICO score is computed, calling the new system FICO 08. The model replaces the existing FICO model, which has remained relatively unchanged since the 1980s.
Per Fair Isaac, here are the key changes in the new model:

• Do Authorized User Accounts Still Work? One of the credit-repair tricks that became popular in recent years was paying thousands of dollars to be listed as an “authorized user” on the account of someone with good credit (usually a stranger), thereby improving your FICO scores enough to get into that home or auto loan immediately. That stops with FICO 08, and rightfully so – because this practice was an obvious form of fraud.
  Here’s the good news-the new model will still allow legitimate authorized users such as a spouse and/or family member.  And I can tell you confidently that this credit building technique still works for spouses and children who have the same last name as the credit card owner.  There have been two cases in the last 60 days where I have seen my clients’ credit scores jump 50-60 points after being added to their spouse’s credit card account.
  It’s always a good idea to build your own credit, when possible, because that gives you power and control, but as a last resort this option will help. To maximize the benefit of this option, you should make sure that the account you are being added to belongs to someone you trust, has NO negative history reporting at all, has and keeps a balance under 30% of the limit and is at least 2-3 years old. 
• Having just one big black mark on your credit, like a repossession, will matter less than it used to if your report demonstrates responsibility overall.
• Collection accounts with balances less than $100 will not impact the credit score any longer.
• Maxing out those credit cards will drag your score down even more than it used to! FICO 08 increases the emphasis on having available credit.
• Having a mix of credit is also more important in FICO 08. This means you MUST have at least 1-2 active major credit card accounts.

FICO said that the new model would have less impact on credit scores under certain circumstances, however, in my experience, the new model appears to be producing lower scores under almost every circumstance.  Especially when it comes to credit card balances and late pays.   So if you are one of those people who are out there wondering why your credit scores have dropped in the past few months-even though nothing has changed, this could be why.
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