FICO recently introduced new methods for calculating credit scores, which could negatively impact consumers who are behind on their payments while helping people who pay off debts quickly. Even though it will take companies months or years to implement these changes, consumers should understand these new methods and begin to make some smart strategies part of their credit methods.
What the Upgrade to FICO 10 Does
The change, referred to as FICO 10 Suite is comprised of both FICO 10 Score and FICO 10 T Score. FICO 10 T considers trended data or time-series data, which is information on credit reports depicting how a person has managed an account over the previous 24 months.
Many credit analysts believe that trending data makes it easier for companies to assess risk.
Under FICO Score 10 Suite, late payments will have a more substantial impact on a person’s credit score than previous FICO Score versions.
A Rising Credit Score Landscape
These changes occur during a time when credit scores as a whole are rising. In 2019, the average credit score reached an all-time high of 703, which qualifies as “good” credit. One reason why credit scores have risen is that negative credit indicators are erased from credit reports after several years. Since 2015, there is also a 180-day waiting period before medical debt is entered into reports. In response, lenders have grown concerned that too much positive data might end up under-rating financial risks. Under FICO 10, however, people with elevated risks will end up having lower credit scores.
Following FICO 10, you can expect your credit score to drop if you took out a personal loan to consolidate credit card bills and the balance has increased again. You also can expect your credit score to decrease if you are not able to decrease your credit card balance or the amount is growing.
How Consumer Should Change Their Credit Habits
If you already have good credit habits, this FICO change will require little alterations to your credit strategy. Some important strategies that you should remember to follow include:
- Monitor your credit report at Equifax, Experian, and TransUnion. Data from your credit report is used to determine your credit score, which is why it is important to make sure that this data is correct.
- Promptly pay your bills as they come due. Approximately 35% of a person’s FICO score is based on payment history. If you cannot pay off a balance in full, you should still pay the minimum amount due.
- Another factor that influences a person’s credit score is credit utilization or how much available credit limit is in use. To keep your credit utilization in control, you should avoid carrying the maximum amount possible on credit cards.
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