SALT LAKE CITY – Recent news about changes to the way FICO determines credit scores caused a big shakeup in the financial world. However, local analysts say the impact of these new FICO credit scores won’t be nearly as big as some news outlets have said… IF there’s any impact at all.
A week ago, Fair Isaac Corp., of FICO, announced the changes they’re making to their scoring model. According to CNN, the new system would take a closer look at a consumer’s personal loans and would take their debt levels into account.
This isn’t the first time FICO has changed their formula. Mortgage analyst Al Bingham says they do that every few years.
“The purpose is to help identify risk in a better percentage than the current model,” he says.
Officials with FICO issued a statement saying 80 million people would see some sort of shift to their score by at least 20 points. Half of those people would see their score go up, while the other half would see it fall.
Bingham is pushing back on that claim. He doesn’t believe anything will change at all, adding that the new system would only impact consumers if the major lending companies decided to adopt them. According to Bingham, no one really is.
“[Lenders] have used the same credit scoring model for the last 24 years,” he says. “We can create all kinds of widgets, but if the widget is not sold for a profit in the public, there’s no value to it.”
Also, he says big banks have a lot of their debt tied to older scoring models, and they have a very good reason not to switch over.
“If these major investors were to change credit score models, it would cost them billions of dollars. Billions.”
Bingham says neither Fannie Mae, Freddie Mac nor the Federal Housing Administration have made any announcements that they’re switching to a new model.