New FICO Score to be More Understanding

New FICO Score to be More UnderstandingDec 26, 2007 Consumers caught in the subprime mortgage crisis may find some relief with Fair Isaac’s new FICO 08. Aside from providing a more accurate risk assessment of consumer credit, the new formula also aims to reward customers for keep other credit accounts up to date.

“The main thing we tried to do with the score was to make sure it was in tune with current consumer behaviors,” said Fair Isaac’s Craig Watts. “We changed the formula to improve the predictiveness.”

The new formula takes into account consumer credit behaviors in all credit areas rather than focusing on accounts that have gone delinquent. Now, consumers who’ve fallen behind on one account could be rewarded for remaining in good standing with other credit accounts.

“If a person has a repossession or foreclosure on their credit score today, that casts a shadow over everything else. They are scored along with other people with serious delinquencies,” explained Watts. “But this new formula looks at not just serious delinquencies, but also at whether consumers have other accounts with positive credit histories. The consumer’s score is not penalized as much for serious delinquencies that are uncommon to his or her credit behavior.”

Although a consumer’s credit standing will vary from lender to lender, the new formula may present more opportunities for F&I managers to get consumer loans bought.

“Our expectation is that lenders will reduce the amounts of defaults on loans by 5 to 15 percent in certain demographic groups. It really helps with consumers who already have serious credit problems, those who are new to credit and those who are seeking credit.”

The Tax Man Cometh…Only He Might Be A Little Late This Year

Late changes to the alternative minimum tax (AMT) provision of the IRS Rules could leave refunds delayed or worse. The AMT was originally intended for the wealthy few when it was created nearly 40 years ago. But because Congress never indexed for inflation the amount of income exempt from AMT and because it disallows a lot of popular tax breaks, tens of millions of middle-class taxpayers could get hit.

Early filers may be forced to submit amended returns in order to comply with any changes. The IRS needs at least seven weeks to analyze any changes in the tax laws, write the necessary software codes and test it. In addition, the IRS needs time to notify all tax professional and others affected. As such, IRS deputy commissioner Richard Spires has warned of a significant backlog in processing returns, as well as the ensuing confusion for taxpayers.

“There are a lot of people that file early and a lot of people that rely on getting those refund checks in that early February time frame,” Mr. Spires said in an interview. “If we’re not able to process those returns for them, we believe it will have a significant impact on them.”

New 1040 and 1040A tax booklets and instructions have already been printed. But 12 related tax forms, including one for the AMT and others for a variety of tax credits, must be revised and put through a new printing cycle if Congress approves new legislation. The credits include those for education expenses and for child and dependent care expenses.

What does this mean for auto dealers? Typically, taxpayers who expect refunds tend to file earlier than others. For tax year 2006, 103 million filers out of 135 million got refunds averaging $2,259 Consumers who traditionally rely on their tax return money for down payments may be forced to wait for their returns longer than usual. The rush of customers who file early to receive quick refunds may be delayed until the IRS sorts this all out.