FICO 2008 - Demsityfing the Latest Version of the Famed Credit Score (Part 2)

By Michael Killian, CardRatings.com Reporter

Editor's Note: This article is the second of a two-part interview with Chris Groppa, Account Supervisor for Fleishman-Hillard, Inc. and Ethan Dornhelm, scoring scientist for Fair Isaac.

Mike: How does FICO^®08 differ from what has been the case?

Chris: The primary drivers of the FICO^® score remain how consistently bills have been paid as agreed, and how responsibly debt has been managed (for example, by keeping credit card balances low relative to credit limits). That said, there are some changes in FICO^®08 that could cause consumers to experience a shift in their FICO^® scores.

• Missed payments - FICO^®08 score will provide greater flexibility regarding missed payments. For borrowers who are in arrears on an account, their FICO^®08 score will drop less if the borrower also has a number of other credit accounts in good standing. However, FICO^®08 scores could drop farther if the consumers' credit reports show multiple delinquent accounts.



• Isolated delinquencies - FICO^®08 score is less likely to penalize a single serious delinquency if it occurred two or more years ago on an otherwise unblemished credit history (no prior or subsequent delinquency). On the other hand, the FICO^®08 score will likely drop further if the credit report shows both a serious delinquency and a pattern of multiple prior delinquencies.



• High credit usage - FICO^®08 will be more affected by high credit usage. Consumers may receive lower scores if their reported balance on one or more credit card accounts is near the account's limit.

FICO^®08 places increased emphasis on demonstrating the ability to successfully handle a variety of types of credit. As such, a consumer who has lengthy experience with a mix of both revolving (credit cards) and installment (auto loan, student loan, etc.) accounts that they have paid on time is likely to be viewed more favorably by FICO^®08 than a consumer utilizing only a single type of credit account. In addition, a consumer whose credit report shows that a relatively larger number of open accounts that are being paid as agreed is likely to be viewed more favorably by FICO^®08 than a consumer who has very few or no active credit accounts which demonstrate successful repayment history.

Mike: Is FICO^®08 in place now and will consumers know which model is used?

Chris: Lenders purchase credit reports through one of the three national credit bureaus: TransUnion, Equifax, and Experian. Fair Isaac is working with the credit reporting agencies to make the FICO^®08 score generally available to lenders as soon as possible. As we announced on January 29, 2009, with TransUnion, the score is now available for customer testing. It is scheduled to be available at Equifax in 2Q09. There is no specific timetable for a rollout with Experian but Fair Isaac continues to work with Experian to implement FICO^®08 score.

FICO^®08 will begin playing a role in consumers' ability to borrow once lenders adopt FICO^®08 and begin using this score version to make lending decisions. There is no precise date that lenders will collectively switch to FICO^®08; the amount of time that it takes for a lender to test a new score on its portfolio before it is ready to adopt the score varies widely. For some lenders, testing might take a few months, and for other lenders, the process could take more than a year. We certainly are encouraging lenders to migrate to using FICO^®08 as soon as possible, and are providing our expertise and support to our clients to facilitate this transition.

Mike: How can people get their credit scores?

Chris: A lot of different credit scores are available online, but only the FICO^® score is widely used by lenders. Consumers can get their FICO^® scores at www.myFICO.com for $15.95 and also receive expert guidance to help manage credit.

You can find more information about credit scores on our active credit card forum. Click here to browse our free credit score trial offers.

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This article was written by Mike Killian, Founder of Learning Credit and Debt Management. Mike has been writing about credit and debt management issues that are of importance to consumers for over 8 years. His articles have been referenced by various members of the media, including MSNBC and The Motley Fool. Mike has also offered debt elimination seminars to businesses and community colleges for many years.

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CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.

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Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thank you for your interest!

FICO 2008 - Demsityfing the Latest Version of the Famed Credit Score

By Michael Killian, CardRatings.com Reporter

Editor's Note: This article is the first of a two-part interview with Chris Groppa, Account Supervisor for Fleishman-Hillard, Inc. and Ethan Dornhelm, scoring scientist for Fair Isaac.

Prior to 1989, credit approval was subjective and time consuming. If an underwriter did not like the color of your hair, you might not be considered for your loan. Similarly, each individual's credit report had to be viewed and analyzed, which often added days or weeks to the loan process. All of that changed with the mathematical innovation known as credit scoring.

I contacted Chris Groppa, Account Supervisor for Fleishman-Hillard, Inc., as well as Ethan Dornhelm, scoring scientist for Fair Isaac. They have lots of information about a new scoring system known as FICO^®08.

Mike: For those not sure what a FICO^® score is, can you offer a mini background on FICO^®?

Chris: First introduced in 1989, Fair Isaac's FICO^® score has gained widespread acceptance as the industry-standard measure of consumer credit risk, enabling lenders to objectively and fairly extend financial opportunities to millions. Your FICO^® score is calculated using the information in your credit reports. The median score is about 720 on FICO^® scale of 300-850. The higher the FICO^® score, the greater the likelihood of repayment. Credit reports contain all of the information that each credit bureau has on file about you. The information that the credit bureaus collect in your credit report includes your credit accounts, how many times lenders have requested information about your credit (inquiries), how many times lenders have turned your account over to a collection agency (collections), and certain legal items (such as bankruptcy filings, tax liens, and judgments).

Mike: Why is FICO^® scoring important to the consumer?

Chris: Consumers who maintain a strong FICO^® score can improve their ability to get lower interest rates on loans. A better FICO^® score can also help them qualify for more favorable terms on an auto loan or mortgage refinance, lowering their monthly payments. That kind of help can be vitally important to millions of people facing financial challenges. Today, 90 of the largest 100 financial institutions, the 25 largest credit card issuers, and the 25 largest auto lenders rely on the FICO^® score to help make lending decisions. U.S. businesses have used more than 100 billion FICO® credit scores to make smart decisions about their customers and prospects.

Mike: What is the rationale for change in FICO^®08?

Chris: Since the introduction of its FICO^® score in 1989, Fair Isaac has routinely redeveloped the scoring formula. FICO^®08 is the company's latest update. Redeveloping the formula in this way keeps the scores attuned to consumers' credit habits. It also allows Fair Isaac to make changes to the model to meet lenders' needs, and it enables the introduction of technical innovations that significantly enhance the score's predictive power. The redeveloped FICO^®08 score offers more refined risk prediction compared with prior versions. As a result, the formula provides significantly improved risk evaluation across the entire population of consumers. Fair Isaac is working closely with leading lenders and government regulators to help them understand how FICO^®08 scores are addressing the changing needs of the industry.

You can find more information about credit scores on our active credit card forum. Click here to browse our free credit score trial offers.

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This article was written by Mike Killian, Founder of Learning Credit and Debt Management. Mike has been writing about credit and debt management issues that are of importance to consumers for over 8 years. His articles have been referenced by various members of the media, including MSNBC and The Motley Fool. Mike has also offered debt elimination seminars to businesses and community colleges for many years.

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CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.

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Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thank you for your interest!

Altenative Credit Scores Provide Hope for Millions

By Rick Shaffer, CardRatings.com Reporter


I would like to share some good news for the estimated 50 million consumers that have no credit rating or a limited credit history. There is now a viable option for establishing credit outside of the traditional avenues. The National Credit Reporting Association (NCRA)--a trade group representing small regional credit agencies--in combination with an organization known as Payment Reporting Builds Credit (PRBC) has created an alternative credit score tracking and reporting service for consumers.

This service includes in its credit score calculations (in addition to the normally included credit criteria, such as credit cards, auto loans and mortgage payments), portions of consumers credit history which are very often positive (for example, rent, phone, water, heat, and other utility bills, small business loans, alimony, child support, payments), but are generally not included in the credit reports from the large national consumer credit reporting bureaus (Experian, Equifax, Trans Union) nor is used by the largest credit score provider--Fair, Isaac Co. (FICO)--in calculating credit scores.

The alternative, nontraditional credit records compiled by PRBC are turned into a "Bill Paying Score" (BPS), which creditors can use as an adjunct to enhance a consumer's traditional credit report and FICO credit score when analyzing the consumer's application for a loan. And note: under federal law--specifically, the Equal Credit Opportunity Act--creditors who use national credit bureau information when analyzing a loan application must also consider other credit information not provided by national credit reporting companies, which the consumer can provide and document (such as a BPS from PRBC).

This is especially helpful to consumers who have had credit issues in the past; they may have little inclination to take on new revolving and consumer debt because they want to stay out of trouble. While this demonstrates smarter money management, it isn't helpful for creating a new credit history with the three major credit reporting bureaus.

Credit applicants who are declined because of insufficient credit history or who feel that the addition of positive but unreported trade lines can result in a favorable underwriting decision should provide a BPS and ask creditors to reconsider their applications. Home loan applications declined by automated underwriting programs can be re-evaluated by underwriting personnel, and by law, additional credit data such as that provided by a BPS must be considered.

For more information on acquiring a BPS and related services, contact PRBC. Please note that fees do apply. Also, as a reminder, some credit and prepaid cards also offer attractive ways to establish or rebuild credit with the three major credit bureaus. Good luck on improving your credit standing!

You can also visit our Free Credit Score section for more information on credit reports and scores!

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Parts of the above article were adapted from Rick Shaffer’s e-book, “Your Bottom Line: Fifty Steps To Firm Financial Footing.” Rick Shaffer, a graduate of Boston College and Northeastern University School of Law, has hosted “The Money Show” since 1991. He has also been a regular guest and contributing financial expert on various programs on New England Cable News, WLVI-TV and other Boston area television stations, and has been a financial, real estate and business writer for the Middlesex News, the Boston Herald, Boston Globe, and S&P Personal Wealth.

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CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.

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Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thank you for your interest!

Debunking Myths about Credit Scores- Go Ahead, Pay Off that Credit Card!

By Amber Stubbs, CardRatings.com Reporter

Lurking among many other credit related myths is the belief that paying off credit cards may cause your credit score to decline. I continue to hear this and other related credit scoring myths from consumers that I interact with on a daily basis. In reality, when you pay off credit cards you decrease your overall utilization - your total balances vs. your total available credit - which improves your score.

In fact, utilization accounts for approximately 30% of your credit score. It is best that you keep your overall utilization below 10%. For example, if your total available credit on all credit cards is $25,000, then you want to keep your collective balance at less than $2,500. And, the lower your utilization is the better your credit score. So, the idea that paying off balances will negatively affect your score is simply not true!

However, the above scenario should not be confused with closing credit card accounts, which could have an adverse affect on your score for two important reasons. First, as discussed above, you have to consider how it will affect your utilization. Typically, closing an account will cause your utilization to increase and, as a result, your credit score to decrease. So, it is important to do the math before making a final decision. (Keep in mind how it could affect your utilization in the future as well!)

Additionally, you have to consider the age of the account. If it is one of your older credit cards, then it could also adversely affect the length of your credit history which makes up 15% of your FICO Score. Most of the time it is better to just "sock drawer" the card if you do not plan to use it anymore. That way having an account in good standing and the available credit is continuing to help your credit score.

Just be sure to remember to use the card about once per year for a small purchase, then pay in full when you get your statement. Doing so will help the account stay active and reporting as such to the three major credit bureaus. Reporting your on-time payments (preferably to all three major credit bureaus) is an effective way to boost your credit score. On a related note, it's also a good idea to check with your creditor to find out which bureaus they are reporting to.

Do you have a credit score related question or what you feel might be a myth that you'd like debunked? Please share your questions and comments by posting on our active credit forum! Also, if you don't know your credit score, be sure to check out our offers that allow you to get your credit score for free.

This article was written by Amber Stubbs, Amber began working for CardRatings.com on a part-time basis in July of 2005 while pursuing her bachelor's degree at the University of Arkansas at Little Rock. She was promoted to VP of Operations and became a full-time salaried employee in August of 2007. Amber is a member of the Arkansas Young Professionals Network and the Arkansas JumpStart Coalition for Financial Literacy.

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CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.

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Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thank you for your interest!

Discover Launches New Credit Score Tracking Service

By Curtis Arnold, Founder of CardRatings.com


Discover Card is now offering comprehensive credit score tracking to its cardholders. Discover’s Credit ScoreTracker, which costs $7.99 a month, sends out alerts when a member’s score changes. It also provides resources to help members understand their scores and to reach target scores that they set themselves.

If you’re a regular reader of the CardRatings.com Forum, you’re already aware of how important it is to know your credit score, and to keep an eye on it - as well as on your credit reports - to both protect your identity and to make sure there are no errors cropping up. ScoreTracker gives you 24/7 access to your Experian credit report.

Discover has created some nifty tools for its ScoreTracker. For example, you can look at a graph that shows your credit score over time - as well as in relation to the goals you’ve set for yourself. You can take a short-term view, such as three or six months, or open up the picture of your credit score to one or two years, so you can see the highs and lows over time.

There’s also something called the Credit Score Illustrator, which shows the importance of various factors in determining a credit score, for example, payment history, closing accounts, credit inquiries, and so on. Interestingly, you can also use this tool as a simulator, to see what might happen to your score if, for example, you pay off more of what you owe or open a new account. I can see how this tool might motivate some folks to improve their credit.

Other resources that Discover makes available via its Credit ScoreTracker include an interactive survey and quiz, which were designed to lead to better financial decision-making, along with articles written to help cardholders better understand their credit. Perhaps the best benefit of this product is that if you need help understanding your credit score, you can always call a Member Services Representative toll free!

If you have a Discover card, you can enroll online or you can call Discover at 888-201-1440. If you do enroll, please let us know your thoughts about this new service!

This article was originally published on CreditBloggers.com by Curtis Arnold, a nationally recognized consumer educator and advocate. Curtis has been educating consumers about credit cards since 1998. He is regularly interviewed and quoted by respected members of the national press regarding consumer credit issues. Curtis is currently working on publishing a book about credit card usage with Pearson/Prentice Hall- more details forthcoming!

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CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.

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Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thank you for your interest!