New FICO 9 Credit Scoring Model Imminent
FICO 9 Credit Scoring Model Coming This Summer
FICO plans to roll out it’s next generation FICO 9 Credit Scoring model on an as yet unspecified date this year. It has been 6 years since FICO 8 superseded previous versions of the widely used FICO credit scoring system. Medical debt will have less negative influence if unpaid; no negative influence if paid. This long overdue change recognizes the results of the CFPB’s study revealing the obvious…medical debt is less predictive of future unwillingness to pay than other forms of debt. This change when implemented will have a dramatic effect on the FICO scores of the large percentage of consumers carrying medical debt on their credit files.
Don’t expect an immediate effect…especially when applying for a mortgage. Banks and mortgage lenders are notoriously slow to change. Many have never even updated to FICO 8. Credit card lenders and car lenders are more apt to update and use the new scoring model when it becomes available.
FICO 9 Credit Scoring Model Claims to Analyze Credit Risk More Accurately
As might be expected based upon their previous history and policies FICO is mum about just how the FICO 9 Credit Scoring model differs from or improves upon previous FICO iterations. In short, no specific new features were announced. FICO has long operated under the philosophy that letting consumers know too many details of its inner workings will lead to “gaming” the credit scoring system. Since FICO’s credit score is their property this is their right. They have always insisted on having their “secret sauce”. Some things about FICO credit scoring are public. Some can be inferred and some are a matter of common sense anyway. Consumers should always be careful about using common sense because much of credit scoring is counter-intuitive to what common sense would tell you.
Good Credit Scores Will be Slightly Better
What FICO does say about the new FICO 9 credit scoring model amounts to a prediction that consumers with a good FICO score will probably have a slightly better score. Those with a poor FICO score will find it will become slightly worse. The fundamental way FICO looks at data provided by the credit reporting agencies will remain the same. They claim that the new model will take into account post-recession spending and credit habits as compared to 6 years ago. Just how this will be done is kept under wraps. They are fundamentally trying to measure risk assessment to determine whether or not the particular consumer is ready to take on new debt. FICO claims the FICO 9 Credit Scoring model will have a laser focus.
FICO 9 Credit Scoring Model will be Industry Specific
Yes, FICO will continue to provide each major credit category with separate scores specific to that particular industry. There will be mortgage scores, credit card scores, automobile scores and sub categories within each category. The Consumer Financial Protection Bureau is continuing to examine the effects of this process on consumers. The scores consumers get on their own differ to some extent from the score the lender gets. This leaves even the most diligent consumer somewhat in the dark as to exactly where they stand. FICO provides an incredible 10 billion credit scores a year.
If you think you are confused now consider this fact. Everyone knows that the range of FICO scores spans 300-850. That’s what everyone says. Merrick bank now offers FICO scores updated monthly with the low limit credit cards they offer for people with marginal credit scores. If you examine the fine print on Merrick’s web site for card holders you will find that the score offered is a FICO 8 Bankcard Score with a range between 250-900.” Not only does the “Bankcard” score consider different factors than the “auto” or “mortgage” score…it actually has a different range!
A Prediction: Implementation of FICO 9 Credit Scoring Model Will be Slow and Spotty
Many lenders are still using older FICO scoring models. A large percentage have not even updated their software to use FICO 8. Some are still using earlier versions than that. This is why I feel safe in predicting that the world of credit scoring will not be suddenly turned on its head by the roll out of the FICO 9 Credit Scoring model. Hopefully FICO will be forthcoming with more information on its FICO 9 credit scoring model by the time it really matters to borrowers.