New Credit Score Could Help Millions, Eventually

Reading Tea Leaves

Most people haven’t noticed any difference at all from FICO 8, and it’s not because their credit histories are impervious to the changes. Rather, major lenders have been unusually slow to switch to the new scoring model.

In fact, the model was originally called FICO 08 because the company planned to implement it in 2008. The new scoring model is named for 2008, when it was supposed to be released. (Because of a lawsuit FICO brought against the Equifax credit bureau, the release was delayed until early 2009.) Now that it’s going on four years since the original release date, FICO simply dropped the zero. Three years after the actual release, most major lenders still have yet to adopt it. And FICO 8 is entirely absent in the mortgage market.

But good luck getting confirmation of that fact from FICO, the credit bureaus or any major lenders, which use consumer data to make the scores but largely refuse to tell the public what they do with it.

“There’s no publicly available data on it,” says Hendricks. “But that’s my sense of it, that it has been slower.”

[Credit Score Q&A: Length of Credit History vs. Late Payment History]

Figuring out exactly what’s happening with FICO 8 is an exercise akin to reading tea leaves. Try calling FICO to ask how implementation of FICO 8 is going, and they say you should call the credit bureaus. Call the bureaus, and they refer you to the banks. Call the banks and they refuse to talk, saying their scoring models are proprietary.

The upshot: This is an industry that relies on data supplied by consumers to function, and that dictates the finances of millions of people. And yet it arguably operates with almost zero accountability to consumers.

“It’s not as transparent as it needs to be,” Hendricks says. “All this information should be filed publicly so we know what’s going on. But we don’t.”

So how can we tell that implementation of FICO 8 is going slowly? After all, FICO issued a press release in June trumpeting the fact that Citibank had implemented the new model.

“The results of Citi Cards’ testing and its adoption of the FICO 8 Score highlight the business value that FICO creates and delivers for its clients and their customers,” Greg Pelling, FICO’s vice president of scores and analytics, said in the release.

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This is one of those cases where what’s said is less important than what’s left unsaid, however. By trumpeting Citi’s adoption of FICO 8 likely made a tacit admission that no other big bank—Chase, Wells Fargo or Bank of America—has made the switch. Together these four companies dominate the credit card market, and control sizable chunks of many other lending industries, including consumer loans.

“It’s an 80/20 rule, where the top 10 institutions in the U.S. represent the vast majority of credit checks each year,” says Quinn.

At least one other major bank plans to switch to the new model, but the details are vague.

“We’re in the process of implementing it, but I wouldn’t have any more details to share,” Betty Riess, a spokeswoman for Bank of America, told Credit.com in an email.

Then there’s the fact that FICO 8 is absent from the entire mortgage industry. Fannie Mae and Freddie Mac, the two government-sponsored entities (GSEs) that currently buy, sell or insure virtually every mortgage currently written, so far have stuck to older FICO models. Mostly they use different versions of FICO Classic, which was last updated eight years ago, according to information from FICO.

“(W)e work with the GSEs to support the adoption of FICO 8 as the industry standard score,” Sprenger says.

[Resource: How to Build Credit if You Are New to the United States]

Why So Slow? »