Manny Moumdjian, who is Fico 8 Certified, explains in simplicity what Fico 8 was created for. Primarily, Fico Credit Reports were easily manipulated in the scoring because of consumers being able to add themselves on to other consumers credit cards as an authorized user. this was done in order to gain their credit history to increase their credit worthiness as well as credit scoring. Authorized User accounts were automatically calculated towards their credit worthiness as it was their own credit. So the consumer would gain points based on the accounts being scored by the Fico Scoring Model. Another term used in place of an authorized user account would be “piggy backing” which under the federal laws are considered FRAUD! Using other consumers credit history to show that you have credit is not accurate. The abuse of Authorized user accounts hit the roof when it came to lending and Fico Scoring. This is why Fico 8 Was introduced back in 2009:
Here’s a look at what changed the most in creating the FICO 8 model for risk.
High credit card usage
FICO 8 score is more sensitive to highly utilized credit cards. So if your credit report shows a high balance close to the card’s limit, your score will likely lose more points than it would have previously. You may want to consider keeping any monthly credit card balance low.
Isolated late payments
If a lender reports to the credit bureau that you were at least 30 days late with your payment, your FICO 8 score will likely lose points. If the late payment is an isolated event and your other accounts are in good standing, the FICO 8 score is more forgiving compared with scores from previous FICO formulas. However if your credit report shows numerous late payments, the reverse is true and your FICO 8 score will likely lose more points.
Authorized user of credit card
Every generation of the FICO score formula has included authorized user credit card accounts when calculating a person’s score. FICO 8 score continues that policy. This can help people benefit from their shared management of a credit card account. It also helps lenders by providing scores that are based on a full snapshot of the consumer’s credit history.
To protect lenders and honest consumers, the FICO 8 formula substantially reduces any benefit of so-called tradeline renting. That’s a credit repair practice that entices consumers into being added to a stranger’s credit account in order to misrepresent their credit risk to lenders.
Small-balance collections accounts
FICO 8 score ignores small-dollar “nuisance” collection accounts in which the original balance was less than $100.
Stay tuned for more information brought to you by Manny Moumdjian