Like always, the exact FICO formula is proprietary information and thus, not available to the public. However, the Fair Isaac Corporation (the creators of the FICO credit scoring formula) has released information as to how FICO ’08 will be calculated.
First and foremost, the Fair Isaac Corporation has decided to change the way that late payments are calculated. Under the old formula, late payments had equal negative weight against your credit score regardless of your prior payment record. Under the new FICO score formula, first time late payments will not negatively effect you credit score as much as they did in the past. However, if you have a pattern of late payments, these late payments will have a greater negative effect on your credit score than they did in the past. Therefore, first time offenders get a small reprieve while repeat offenders are more severely punished.
Another change is that a certain credit score element will no longer be calculated into your credit score. A practice called “piggybacking” (piggybacking is the practice of adding a person as an authorized user onto your credit cards. The effect of this is that when the authorized user has his/her credit score checked, his/her credit score will be calculated based upon the information in his/her credit report AND on the information contained in your credit report. Therefore, if you have great credit, your high credit score will greatly boost the authorized user’s lower credit score) will no longer be calculated into your credit score. The Fair Isaac Corporation is discontinuing counting this practice in a person’s credit score because it believes that piggybacking gives lenders a false representation of a person’s credit worthiness. Therefore, only the information in your credit report will count towards the calculation of your credit score.
As far as things like timely payments, debt to credit ratio, length of times credit accounts have been open, and ownership of a major credit card, these elements will still be calculated into your credit score as before.
It is important to note that not all of the credit reporting bureaus have enacted FICO ’08. However, their acceptance of the new formula is expected to become complete by the middle of 2008.