The Fair Isaac Corporation
The new FICO model incorporates entirely new methods for analyzing the financial habits of consumers; rather than looking at a small slice of consumer habits, the FICO 10 model incorporates the past 24 months of financial history to determine a user's credit score. FICO 10 still incorporates traditional measures of consumer credit such as payment history and what types of accounts one has, but now measures cumulative debt. If a user's overall debt is rising despite on-time payments, their score will still go down. The newer model essentially paints a clearer picture of a consumer's credit history, which will cause credit scores to fluctuate as the FICO 10 model is implemented.
The model can also be considered more forgiving in some respects, but more stringent in others. For example, during peak shopping seasons if a person were to rack up credit card debt in a short amount of time, their score will not change if they are normally fiscally responsible and pay their bills on time. The model considers these brief spikes in spending activity and will not include them in a credit score if the person in question is otherwise financially sound. In contrast, the new model takes a harsher stance on credit card debt and personal loans, which are considered risky financial moves. Unchecked credit card debt growth with cause a score to decrease over time even if a consumer takes steps to pay other bills on time.
FICO was enthusiastic about the new model upon its announcement. "They really do an excellent job of reinforcing good consumer financial habits - making payments on time, not running up balances, taking out credit only when you need it. Those types of behaviors are rewarded strongly." FICO Vice President of Product Management Dave Shellenberger told Yahoo Money. Industry experts were keen to share this sentiment. Ted Rossman of Bankrate.com spoke of the model's improved accuracy, and how it painted a clearer picture of financial habits, and could better benefit some people. "The flip side though is that if you're improving. If your (sic) the proverbial C student that starts getting a bunch of As, that's going to help you" he said.
The new model is set to meet concerns raised by some lenders that stem from changes to the credit reporting system. A trend of rising credit scores has been attributed largely to a rising economy, though lenders are quick to attribute at least some to a settlement between credit companies and several states that saw millions of records cleared of negative credit items, bringing worries of artificial score inflation. FICO has assured lenders that this is not the case.
