When Fair Isaac Corporation (FICO) rolled out their “new and improved” FICO 08 credit scoring model last year, hopeful consumers with single derogatory incidents on their reports anxiously awaited the possibility of improved credit scores under the new system. The updated scoring model, developed in part in response to the subprime mortgage crisis, minimizes the effect of small, missed payments listed in collections with original amounts of $100 or less on your credit score, and more major single delinquencies if two or more years have passed.  But has the new scoring model been effective to date at screening potential homeowners looking to be approved for a mortgage?

The current answer seems to be  ”not yet”. According to a number of recent news sources including an article in marketwatch, one major reason is because the largest sources of home financing, Fannie Mae and Freddie Mac, have not yet approved it. The marketwatch article quotes John Ulzheimer (former FICO employee and currently president of consumer education at credit.com) as follows:

Many credit-card companies, auto lenders, regional banks and credit unions may have already adopted FICO 08, Ulzheimer said. But for mortgages, lenders doing traditional conforming loans backed by Freddie Mac and Fannie Mae likely haven’t made the move yet, he said. That’s because they’re waiting for Freddie and Fannie to approve its use. Freddie Mac and Fannie Mae “are essentially the lender… they’re the ones that set the underwriting criteria,” he said.

Ulzheimer said he expects Freddie and Fannie to adopt FICO 08 by the end of the year. Fannie declined to comment on FICO 08; Freddie wasn’t able to provide a comment prior to publication.

Credit scores help lenders determine a borrower’s risk level and ultimately whether a mortgage loan is approved, along with the interest rate offered. In general, the higher the score, the easier it is to get a mortgage loan and the lower the interest rate. FICO 08 was developed to provide better way of analyzing risk in the wake of rising mortgage defaults and consumer credit delinquencies, but to date has not been embraced by lenders on a widespread basis. But this may change in the not-to0-distant future, if the predictions by Mr. Ulzheimer are correct.

Readers, what are your experiences if any with the FICO 08 scoring system? Please share with a comment!

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