The Fair Isaac Corporation, which developed the FICO score that is the most widely used way to determine one's credit ranking, revealed a new model that can more accurately calculate one's financial standing a couple years ago, and it is important to understand what has changed.
The FICO score is the most popularly used figure to determine interest rates on car loans, credit limits and more, and the newer model, FICO 08, promises to be a better representation of a consumer's credit risk and help lower consumer default rates. While it takes the same figures into consideration – payment activity, credit history, credit utilization ratio, mix of credit accounts and new credit requests – there are a few changes to more precisely reflect a consumer's score.
For example, those who are new to the credit game can assume another person's credit score by "piggybacking," or becoming an authorized user on his or her credit card. This is most often done between parents and children, and while the parents may have a gleaming ranking, it doesn't really predict whether or not the child will be a credit risk.