On January 23, credit scoring company FICO introduced two new credit scoring models for lenders and credit bureaus to use by the end of 2020. The latest versions are the newest since the company launched FICO 9 in 2014.
For consumers, it’s natural to wonder how these new FICO changes will impact your credit score. Here’s what you need to know.
What credit score changes has FICO made?
What FICO calls the FICO 10 Suite includes two new credit scoring models: FICO 10 and FICO 10 T. For the most part, these models consider the same basic factors of your credit history, but there are some key credit score changes to understand.
FICO 10: If you miss a payment and it remains delinquent for more than 30 days, that late payment will hurt your credit score more with FICO 10 than in previous scoring models. Also, your credit utilization—your credit card debt relative to your available credit on your cards—will also have a bigger influence on your score. Personal loans may also lower your FICO score.
FICO 10 T: This scoring model, the first version the company has introduced, includes what’s called trended data. Trended data shows how you’ve managed each of your credit accounts over the past 24 months, including your balances, minimum payment requirements and actual payments. This information provides lenders with a better understanding of how you manage your money and whether you’re reducing or increasing your debts over time.
If you have a low credit score due to late payments or high credit card balances, you’d likely see your score drop even further with the new credit scoring models. The same goes if you’ve struggled to reduce your debt over the past couple of years.
Finally, if you’ve relied on personal loans in the past or plan to in the future for debt consolidation or any other reason, it could have a negative impact on your score.
How to avoid a lower credit score with the new FICO models
If you’re concerned about how the new FICO versions will impact your credit score, don’t fret too much. The models aren’t currently available to lenders and credit bureaus, and may not be until late 2020. Even then, they may not start using them for several years.
Case in point: FICO 9 was launched in 2014, but many lenders still use the FICO 8 model, which was introduced in 2009.
That said, there’s no way to tell exactly when we’ll start seeing the FICO 10 Suite models in action, so it’s still a good idea to prepare yourself with these tips:
Pay down credit card debt. High credit card balances are not only bad for your credit score but also for your financial health. Make it a priority to pay them down to protect your score and save money on interest.
Always pay on time. Set a goal to pay your bills on time every month. If you’re struggling financially, work with your lender to avoid late payments. And if you have current delinquent accounts, work on getting caught up as quickly as possible.
Make your credit score a priority. If your credit score is high, you likely won’t see a significant impact from the changes in FICO scoring. Take some time now to improve your credit, so you can be ready when lenders start using them.
Avoid personal loans in most cases. Although you can use personal loan funds for just about anything, it’s best to avoid them. One exception is if you’re trying to consolidate high-interest credit card debt. In this case, the interest savings and becoming debt-free can be worth the hit to your credit score.