FICO debuts its new credit scoring method

Thursday, Fair Isaac, the developer of FICO scores, unveiled its "new-and-improved FICO score," according to The Wall Street Journal(subscription required). It's a new way of coming up with your credit score, and TransUnion LLC, one of the three major credit bureaus, is right out the gate in using the method. Equifax should begin using it in the second quarter of this year, and Experian Group Ltd, reports The Wall Street Journal, hasn't announced when or if it will use it "due to pending litigation with Fair Isaac."

Let them squabble. The important question is: What does this mean for all of us?The numbers --300 to 850 -- won't change. But the new way of developing the score is supposed to be more efficient at predicting borrower defaults, says the WSJ, and will "be more forgiving of one-time slip-ups and take a harder line on repeat offenders."

So if your credit score is in the toilet, maybe you should read something else. Really. Why spoil your day?

Credit experts have known this was coming for awhile, which has been why it's been nicknamed "FICO 08" instead of FICO 09. In any case, according to, the new score should reduce the risk of defaults and improve the predictability of defaults by 5-15%.

If you have a good credit score but have missed a payment or two, but otherwise, are in terrific shape, you eventually might see your credit score climb by more than 20 points, which, hey, is awesome and congratulations. If you have really lousy credit, you may see it drop by 20 points. (See, I told you. Read something else.)

So why might your score go down? For starters, it used to be that if you were using more than 50% of your credit limit, then your score started going down. Now it starts going down in some cases if you're using as low as 10%, though 30% seems to be the new limit to aim for. Yes, it's a fun new rule, isn't it? I'm thinking that people working at a credit card company probably aren't invited to a lot of parties these days.

But, again, these changes will take awhile to be instituted, so if you have less-than-stellar credit but are working diligently to regain a better standing with the credit scorers, the new changes may not hurt you too much, and depending how successful and swift you are in improving your score, FICO 08 could make your credit score look even better in 2009.

Geoff Williams is a freelance journalist who occasionally writes about credit cards for He also is the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale).
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