Updates

Here are summaries of important legal or procedural changes that affect the latest edition of this product. If you want to check on the accuracy of any other information in the book, please follow the legal research instructions in the book or in Nolo's research manual, Legal Research: How to Find and Understand the Law.

Credit Score Formula Changes: Welcome to FICO 08

Fair Isaac (FICO), the major player in the credit scoring industry, has decided to change its formula for calculating scores. A credit score is a three-digit number that attempts to predict the likelihood that a particular consumer will be able to pay off debts and loans in the future. FICO scores range from 300 to 850: The higher your score, the better your credit. Your FICO score can determine whether you qualify for a mortgage, car loan, or credit card, and how much interest you’ll be required to pay.

FICO scores are based on a formula that looks at your payment history, the amounts owed on each account, the length of your credit history, how much new credit you’ve applied for recently, and what types of credit you have. (For more information on the factors FICO weighs in determining your credit score, see Credit Scoring.)

Recently, FICO made a few changes to its formula. The new model, called FICO 08, includes these tweaks, according to published reports:

• Authorized user accounts won’t be considered. An authorized user is someone who has permission to use another person’s account -- for example, a son or daughter who is allowed to use a parent’s credit card. Previously, the authorized user, often someone without credit in his or her own name, was allowed to benefit from the account holder’s good credit history. However, fraudulent “credit repair” companies took advantage of this by adding people with poor credit to strangers’ accounts as authorized users. As a result of this scam, FICO is no longer consider authorized users when determining credit scores.
• Shopping around won’t hurt your score. Previously, having too many credit inquiries on your credit report could bring down your FICO score. A credit inquiry is made whenever you apply for a credit card or loan; it reflects that the creditor is investigating your credit report. Under FICO 08, a moderate number of credit inquiries, which often indicates that someone is shopping around for a good rate on a loan or credit card, won’t hurt your score.
• One credit problem won’t be as debilitating. As long as you’re current on your other credit accounts, a single problem account (a repossession or delinquent account, for example) won’t harm your overall credit score as much as it used to. On the other hand, if your other accounts also are in trouble, you can expect to see your score go down.

Back to Top