FICO hasn’t made a significant change to it’s scoring algorithm since back in 2008 (although this wasn’t really pushed into effect until 2009). Anthony Spruave (Senior Consumer Credit specialist at FICO) says the fundamentals will be staying the same for the FICO score but lenders can expect greater accuracy.
The Classic FICO Score9 will be rolled out first, with industry specific scores being added in late 2014. The main change to the new score is that it will now analyze post-recession data to compare how a persons spending habits have changed between now and six years ago. Meaning that consumers (or those with similar credit profiles to those) who prioritize paying back debt  in the face of a recession will see an increase in their score. Whilst those who don’t will see their score drop.
Key Facts:
- FICO Score used in over 90% of lending decisions
- Lenders purchased more than 10 billion scores last year
- 30 million consumers received their FICO score for free under the FICO open access program in 2013
What Does This Mean For You, The Consumer?
At the moment this doesn’t have a great affect on consumers, lenders are very slow to take on new scoring algorithms, with some lenders still using the 2004 model. This is because large financial instiutions are resistant to change and a conversion to a different scoring algorithm presents considerable risk. Whilst most lenders have graduated and now use the 2008 model, this has been an extremely gradual process with the majority making the switch in the last 1-2 years. FICO is hoping to improve the uptake of their latest offering by allowing comparability with their existing scores.
Those who currently have a high FICO score, will likely continue to have a high score with the new model and vice versa. Our major concern with this update of the score is that it’s a reactive change (to try and prevent similar losses that all lenders sustained during the last recession) rather than a proactive change that will prevent this from happening in the future.
We’ve contacted FICO for a comment and hope to have an interview with one of their senior analysts in the near future.
Hat tip to the official FICO press release
