The FICO score, named for Fair Isaac & Co., its Minneapolis-based creator, is so much the standard among credit scores that FICO's imitators have been nicknamed "Fakos." The latest generation of the scoring method -- the fifth since its introduction in 1989 -- will be called FICO 08. Owing to delays, however, the system is scheduled for release in early 2009.
The current version was released in 2002. Fair Isaac stresses that the new system is not a reaction to the financial crisis but part of normal tweaking.
"The model continues to rank-order risk -- the probability of default" in the subprime and overall markets, explains Tom Quinn, VP of global scoring for Fair Isaac. Yet some social patterns are changing. "It's not necessarily [seen as] a bad thing to have a lot of debt," he adds, so FICO 08 will assume consumers use more credit now than before. "The new score," Quinn continues, "will be more predictive when it comes to customers with heavy debts, and more forgiving of those with slight blemishes."
One thing that will not be factored into the new score is income -- "one of the few data elements not widely known," according to Quinn. Property value forecasts, another big factor in the subprime collapse, are also outside the score's scope, he points out.
Quinn notes that credit scores provide odds, not certainties. "My young brother's a chef, earning less than $30,000 a year. But he has a very good FICO score because he pays his bills on time," Quinn says, questioning his brother's ability to handle a large mortgage in a rising-rate environment. That's why it's important for lenders to verify income and other data beyond the credit score, Quinn insists.
The three national credit bureaus are working jointly with Fair Isaac to create FICO 08. Quinn says he expects TransUnion (Chicago) and Equifax (Atlanta) to release their versions of the product in the first half of 2009; the release date for Experian (Costa Mesa, Calif.) is undetermined.