Equifax Adopts FICO 08

Back in January, TransUnion became the first major credit bureau to beginning using FICO 08 , the updated credit scoring formula rolled out by Fair Isaac Company. (This explains, somewhat, the dip in my credit score as reported on Credit Karma .) However, the other two credit bureaus have been slow to adopt the new formula. Now, though, with Equifax adopting the new FICO 08 formula , things are about to become truly changed in the credit score landscape. MainStreet.com offers a guide to some of the main changes offered by FICO 08 :

1. Debt load : A higher debt load will weigh more heavily on your credit score.
2. Available credit : FICO 08 doesn’t not penalize you as much if you have a large amount of available credit that you are not using.
3. Debt activity : Sadly, a reduction in debt activity could weigh on your credit score. With only a couple of credit accounts, you could find your score slipping.
4. $100 debts : Any unpaid debt under $100 will no longer have a huge effect on your score. In fact, it may have almost no effect on your score.
5. One-time credit mistakes : Penalties for mistakes (such as a single late payment or charge off) won’t be as severe.

The main point is that FICO credit scoring has become more sophisticated, allowing for finer shadings. In a way, that can be helpful, allowing for human mistakes. However, FICO 08 does not address one of the main arguments many have with the credit scoring process: That in order to be considered “financially responsible” or even viable, you have to use credit and even carry a balance. No matter how you look at it, credit scoring is still angled to encourage debt .

Image source: Mattes via Wikimedia Commons