Fair Isaac Corporation, the company that is responsible for the credit scoring system used to determine the credit worthiness of borrowers (known as FICO scores), is planning to tweak their scoring system in 2008. This may be good news for some borrowers looking to refinance their homes. While there are no credit score requirements in the FHA program some lenders look at credit scores anyway when deciding whether to fund an FHA loan application or not. The simple fact is that a higher FICO score is always useful even when applying for an FHA loan. Here are some excerpts from an recent article by Jane Kim of the WSJ online:
The company that cooks up credit scores for millions of Americans is changing its recipe — and that could affect how easily you get credit in the future.
Fair Isaac Corp., maker of the popular FICO credit score used by most lenders, says its new scoring model will do a better job predicting the likelihood of a borrower defaulting on a loan. For one thing, the new model, dubbed FICO 08, will be more forgiving of occasional slips by consumers, but will take a harder line on repeat offenders. Fair Isaac predicts its new system will help lenders reduce default rates on their consumer credit by between 5% and 15%.
The rollout of the new credit-scoring system comes at a time when lenders say they are eager for more-accurate measures of credit risk, in part because of rising loan defaults as subprime mortgages go bad and housing prices fall. And there are signs that delinquencies are creeping into other types of consumer debt, including auto loans, further prompting lenders to tighten up on credit.