Vision Credit Education, Inc.

Fair Isaac has reported that the massive overhaul to their FICO credit scoring model will be implemented at some point in the summer of 2008. Known as FICO 08, the changes are meant to curb the abuses of credit repair schemes and provide better predictors of consumer risk factors.

Banks and mortgage lenders that have been burned by massive losses in the past 3 years have demanded more support from Fair Isaac Corporation. Their claim is that the credit scoring formula has become too vulnerable to those seeking to manipulate scores.

Lenders have argued that credit scores have failed to accurately predict default risks. Fair Isaac counters that lenders that offered loans based on stated income put too much faith in credit scoring and failed to exercise due diligence in their underwriting practices.

Major Credit Scoring Changes

1. Credit scoring will differentiate between delinquencies based on occasional oversight as opposed to financial distress.
2. Smaller delinquences of less than $100 may be ignored, since these frequently represent non-credit related transactions.
3. Piggybacking is effectively eliminated through the omission of all authorized user records.
4. Additional products are available that can notify lenders when their customers have substantial changes to their credit files.

Fair Isaac has responded by providing changes to credit scoring formulas that should restore integrity and confidence in the credit scoring process. Lenders are hoping that the changes will help them restore profitability in their portfolios.