New Credit Scoring model for 2008 - FICO 08

Fair Isaac Corp., the company that made the FICO credit score popular, is changing the way it determines that score. The model, named “FICO 08” should do a better job predicting loan defaults, according to the company. It is set up to be more forgiving of occasional slips by a consumer, but will take a tougher stance on repeat offenders. This new version will still score from 300 to 850 and will still take into account level of credit indebtedness, credit length, number of new accounts and inquiries, and types of credit, to determine scores. But, it will do a better job of separating “good risk” from “bad risk”, with thin, or young credit files, as well as consumers who are actively seeking new credit, being a part of the client profiles that will be more heavily scrutinized. The model will also be more lenient to people with serious delinquencies (greater than 90 days) if they have other accounts in good standing, which backs up their claim of forgiving occasional slips.

The VP of global scoring for Fair Isaacs is predicting that more consumer scores will go up than go down!

As far is this relates to the mortgage industry, good credit is always a plus when you are trying to buy a house. I can’t see the new model making much of a difference either way unless borrowers are serial delinquents, in which case they will see a decrease in their scores. With the abolition of most 100% financing programs, most lenders are now requiring scores above a certain level just to be able to obtain Mortgage Insurance for any program above 80% LTV. There are different scenarios too numerous to list that pertain to the new rules. However, the best way to find out your ability to purchase a home is to contact me directly so we can discuss your individual situation. Have a great week!

Craig Pollard is a mortgage professional and owner of Texas Mortgage Team. He specializes in the Dallas Fort Worth area and is a frequent voice on Texas Home Central’s blog. Craig can be reached at CPollard@Texasmt.com or 972-317-9900