How Fair is Fair Isaac's Latest?

Companies mentioned in this report Fair Isaac Corp. (FIC), Citigroup (C - Analyst Report), Bank of America (BAC - Analyst Report), Wells Fargo (WFC - Analyst Report) and Equifax (EFX - Analyst Report).

Fair Isaac Corp. (FIC), which operates the nation's major credit scoring system has unveiled a new system called FICO 08.

The traditional FICO credit score of 300-850, was devised to allow lenders the ability to better predict the likelihood of a borrower's default propensity. The new FICO 08 still uses the 300-850 scoring range and does include familiar credit history factors in its calculation, and is viewed as a routine update of the coring model, not a response to the current economic crisis.

While the new credit score penalizes people who have a habitual history of late payments, those with an isolated financial incident potential could see some improvement in their credit score. This is Fair Isaac's attempt to address issues that lenders are struggling with, consumers with blemished credit histories.

If the new score could help financial institutions be more willing to lend, with would benefit companies such as but not limited to Citigroup (C - Analyst Report), BankAmerica (BAC - Analyst Report) and Wells Fargo (WFC - Analyst Report).

On January 29, 2009, TransUnion announced it would be the first of the three major credit-reporting agencies to offer the new score to lenders. While Equifax (EFX - Analyst Report) is expects to offer the new score in the coming months, Experian declined to comment given its pending litigation with Fair Isaac.

However, overall all we have some reservations:

* If the lenders are the only ones that can get and see this scoring system, how can the borrowers know what items need to be addressed?

* The credit scores that some of the credit-scoring agencies are offering are not the same that are being reported to the lenders. The credit-scoring agencies may report to the consumer their proprietary score as the cost is cheaper and there is no fee paid to Fair Isaac.

* More importantly, even if you correct items, it can take months 3-6 months for the correction to be reflected in the credit score, as many companies are taking longer to report the changes to the credit scoring agencies, or refusing to remove the items as there are cost associated.

Read the full analyst report on WFC

Read the full analyst report on EFX