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About 110 million American consumers could see their credit scores change by the summer due to new FICO scoring by the Fair Isaac Corporation.
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The new model will analyze a more extended period of your payment history. If you missed a car payment about two years ago, the negative effect would be about the same today.
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The new credit scoring model will factor personal loans, and those installment payments will affect your credit score negatively.
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If you carry credit balance and open new accounts, the new credit scoring model will penalize you. So, a credit card balance transfer strategy will have a more profound negative impact on your credit score.
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About 110 million American consumers could see their credit scores change by the summer due to new FICO scoring by the Fair Isaac Corporation.
Fair Isaac Corporation announced last week that the FICO score’s changes will go into effect in the summer. The FICO score is the country’s most widely used credit score. According to the company’s website, 90% of lenders use the score. The new credit scoring model will affect more than 110 American consumers. There will be a 20-point deviation of about 80 million consumers. So, you can expect your credit score to go up or down 20 points.
When Will the Credit Scores Change?
A few selected lenders have been testing the FICO Score 10 Suite, the new scoring model. All lenders will start using, and consumers will have access to the new credit score in the summer.
Why Is Fair Isaac Corporation Making the Credit Score Changes?
The Fair Isaac Corporation often make changes to their credit scoring model every five years or so. However, the coming changes will affect more consumers than the previous ones.
A twenty-point decrease in your credit score can make mortgages, auto loans, and credit cards more expensive.
What Are the Main Changes?
A Longer View of Payments
With the existing credit scoring model, old delinquent accounts have less impact on your credit score. The new model will analyze a more extended period of your payment history. If you missed a car payment about two years ago, the negative effect would be about the same today.
Installment Payment
The new credit scoring model will factor personal loans, and those installment payments will affect your credit score negatively.
Penalizing consumers for taking out personal loans could not have come at the wrong time since more American consumers are taking them more now.
Other Changes
If you carry credit balance and open new accounts, the new credit scoring model will penalize you. So, a credit card balance transfer strategy will have a more profound negative impact on your credit score.
What Can I Do?
If your credit score ranges from good to excellent, you need to keep doing what you have been doing–making timely payments, avoiding taking on too much debt, and maintaining zero or low credit card balances.
You need to start doing the things, as mentioned earlier, if your credit score is fair and below. The new credit scoring model will most likely affect more consumers with lower credit scores.
The average FICO score rose to 706 in 2019. Factoring a longer view of payments and installment loans might reduce the average rating.
If you are part of the 40 million consumers who expect their credit to decrease by 20 points, you need to pull your free credit report and analyze the tradelines for erroneous accounts.
