The Fair Isaac Corporation developed the FICO score to give credit issuers an analytical tool to determine a borrower’s likelihood of default. Since its development,1 the FICO score product has become the standard consumer credit score used by creditors to make more informed lending decisions. However, as the consumer finance market has evolved in recent years, the FICO score’s predictive power has suffered. According to a 2001 Fitch study,2 the FICO scores of borrowers who stopped making home-loan payments differed on average by just 31 points from those paying on time. By 2006, this gap had shrunk to only 10 points. At the same time that its predictive power for evaluating borrowers is declining, FICO scores are being used in an ever-growing multitude of applications that seem far removed from the function these scores were designed to serve. For example, credit reports are not only used to prescreen credit card offers, but also to set insurance premiums, and to evaluate prospective candidates for jobs. According to BusinessWeek magazine, retailers even use FICO scores when deciding on where to place new locations for their stores. 3

Compounding the problems arising from the use of credit scores in these new applications, some entrepreneurial businesses have discovered techniques to manipulate FICO scores based on loopholes in the FICO formula. In fact, an entire cottage-industry has developed, consisting of companies offering to boost consumers’ credit scores through a technique known as “credit piggybacking.”4 TheFairIsaacCorporationhasroutinelyredevelopeditsformulasincethe initial release of FICO in 1989; however, under pressure from its customers (creditors) due to the worsening problem of score manipulation, it has recently released an upgrade for its credit scoring formula: FICO 08.

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