Credit Score Formula About to Change
Fair Isaac, the Minnesota company that scores consumer credit ratings, has announced it will tweak its formula to better predict defaults on loans. A company spokesman said it’s new formula with improve its prediction of how likely a consumer is to default on a loan by 5 to 15 percent. While 15 percent doesn’t sound like much, reducing defaults by 15 percent could make or break a loan company and help consumers avoid bankruptcy.
Some consumer’s credit scores will go up and some will go down, but unfortunately, Fair Isaac didn’t say what would effect your score.
Credit scores have done so well at predicting the likelihood a consumer would default on a loan, lenders have come to rely on the scores. Unfortunately, in the recent “wild west” environment of subprime and risky loans, Fair Isaac’s predictions haven’t worked well. Lenders say consumers with higher credit scores are defaulting on loans than in the past.