The FICO credit score, that most lenders use to determine approvals for loans, is being overhauled with a new scoring model that should do a better job in predicting the rates of default by borrowers. This new scoring model has been dubbed, “FICO 08″ and will be more forgiving of the occasional forgotten payment by consumers. However, this new model will adopt a stricter policy towards repeat offenders. Fair Isaac Corp has predicted that its new and improved scoring model will help lenders reduce the rates of default, in regards to consumer credit, by 5% to 15%.

This new credit scoring model could not have come at a better time, with the ever-present rise in defaults due to subprime mortgages and decline in housing prices. Consumers could start seeing the new FICO scores by the spring. Due to the demands for better risk-management tools from the lending institutions, Fair Isaac says that it will be moving forward with its accelerated credit scoring model release.

The look and feel of this new FICO score will be familiar to lenders and consumers. Scores will still range from 300 to 850, and the model will continue to look at the same factors: history of payments and debts owed to creditors, credit history timelines, number of recent credit openings and inquiries, and type of credit utilized. This new credit score model will disect the information in consumers’ credit files with more precision, in order to separate the levels of risk: low risk vs. high risk. The president of consumer education for Credit.com, John Ulzheimer, states,”Consumers who are low risk will score better with the new FICO version, and consumers who are high risk will score lower.”Higher-risk borrowers may find that it is more difficult to get credit, while those with low risk profiles will begin to receive better deals from lenders, says Mr. Ulzheimer.