Consumer Car Buying Advice Blog

FICO 08 finally arrives in 2009 and the reason for the delay could actually raise the credit scores of many consumers.

Changes to FICO 08

Back in 2007, the Fair Isaac Corporation announced, with much fanfare, that it had developed a new credit scoring model that would stop the practice of “credit piggybacking” as a method of improving credit scores, something we wrote about here at Auto Credit Express. Piggybacking is the practice of allowing someone with limited, poor or no credit history to be added as an “authorized user” to the account of someone with good credit in order to add to their credit history and, ultimately, to improve their credit score.

As you can imagine, this caused quite a controversy especially with those businesses in the credit repair field. One such company, based in Denver, Colorado, challenged the new scoring system. According to the company, “credit piggybacking is a legal method of improving a personal credit rating by adding an individual as an ‘authorized user’ onto an account of a person who already has good credit. This quickly and dramatically raises the authorized user’s FICO credit score.”

The company, boostmyscore.net, “which utilizes credit piggybacking to improve clients’ FICO credit scores, was of the opinion that ignoring authorized user accounts in an individual’s credit report was illegal — and Congress, the Attorney General, and the FTC agreed.”

Credit piggybacking still allowed

During a Congressional subcommittee hearing in July of 2008, Fair Isaac, following the recommendation of the FTC counsel, admitted that it would be illegal to ignore authorized user credit histories as a part of the FICO score calculation. This decision required Fair Isaac to revise FICO 08 and delay its release. On its web site, Fair Isaac states the following:

“Recent ‘credit repair’ tactics involving the manipulation of authorized user accounts have stirred industry-wide concern. This deliberate distortion of credit histories—often referred to as ‘piggybacking’—creates potential loss exposure for lenders. There is currently no information in the credit report that identifies legitimate AU relationships.

Still, many lenders want FICO® scores to continue considering spousal AU trade lines to support compliance with the Equal Credit Opportunity Act, Regulation B. In response, Fair Isaac analysts have developed patent-pending technology that includes AU data in the calculation of scores, while reducing potential impact from tampering.”

According to boostmyscore.net founder Bill Airy, “We’re not getting good scores for deadbeats with bad credit. Credit piggybacking doesn’t change or erase a bad credit history or make a bad credit risk suddenly look good. It just helps those who need to establish credit and/or raise their credit score to qualify for a loan and optimal financing terms. It’s an important service for legitimate borrowers, especially as the credit markets continue to tighten.”

Other provisions of FICO 08

In addition to the “non-change” for credit piggybacking, FICO 08 also changes the way Fair Isaac looks at small collections, as it reduces the impact of collections under $100 while increasing the impact of multiple late payments.

According to Fair Isaac, the new implementation calls for customer testing at TransUnion by the end of January 2009 and at Equifax by the second quarter of 2009 with no word on when Experian plans to use it.

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