Article Bookmarked
Bookmark Removed

Will the New FICO Credit Scoring Model Help or Hurt You?


Jan. 27, 2020 Money Management International

Just when you finally think you’ve got this credit thing all sorted out, here comes FICO with another updated scoring model. And as with all new scoring models, it could be a very good thing for you…or a very bad thing. Here’s what you need to know about the new FICO Score 10.

REMINDER: YOU HAVE MULTIPLE CREDIT SCORES

First things first, whenever we’re talking about a new credit scoring model it’s important to point out that there are quite a few different scoring models out there. FICO is the most recognizable name in the game, but even FICO offers more than one scoring model.

So when we say, “These changes will impact your credit score,” what we’re really saying is that these changes will impact one of your credit scores. And that only really matters if a lender or other party is using that particular scoring model.

WHY DO CREDIT SCORING MODELS KEEP GETTING UPDATED?

When new credit scoring models are rolled out, they’re usually designed to better predict the behavior of individual consumers and borrowers. Certain factors are emphasized, others are de-emphasized or phased out altogether. New models strive to do a better job using the available data to help make good decisions. For the many competitive markets where consumer credit scores matter, the more precise a credit scoring model, the better.

You may not be personally impacted by the FICO Score 10 right away because the lenders you interact with may not be using the FICO Score 10. It’s still very important to pay attention to these changes, however, because they likely represent trends that will eventually make their way into other scoring models.

WHAT CHANGES WITH FICO SCORE 10?

The major upgrade for FICO Score 10 is the use of trended data. Historically, credit scores have been based off of a snapshot of your current credit report. Today’s credit balances and today’s credit utilization ratios helped form the basis of most scores. FICO Score 10 more carefully examines a consumer’s recent history and the trends that have developed over time to predict their creditworthiness.

The aim of the new model is to better identify risky behavior and adjust scores accordingly.

HOW YOUR SCORE COULD CHANGE

If the new scoring model works as intended, normal, traditionally healthy credit usage will continue to help build a strong score. You may also find yourself significantly less penalized for negative marks that don’t fit the pattern of your recent usage.

For example, a sudden spike in debt – whether from holiday shopping or an unexpected medical bill – should hurt your credit significantly less than it may have in past models, especially if your overall trends are positive. This new scoring model should do a better job of rewarding you for consistently positive credit behavior over time, even when things take a momentary dip.

On the flip side, however, certain risky credit behaviors that haven’t been factored into previous scoring models could cause your score to drop. One potentially significant factor is a rising debt load. If your debt levels are trending up – even if your credit utilization ratio is still looking okay – you may be seen as risky and your score could drop.

Similarly, if you consolidated your debts with a consolidation loan and then began accruing new credit card debt, that may likely be viewed as risky behavior and your score could be penalized as a result.

Read More on Money Management International

Gene Upshaw Player Assistance Trust Fund

Apply Today

All Resources

Tell Me More

Is It Ever a Good Idea to Borrow From Your Retirement Fund?

When you have immediate needs and few options, it might not be so simple.
Read More

Protecting Yourself from Coronavirus Scammers

A sad but but familiar story emerges in times of disruption to normal life.
Read More

How to Safeguard Your Finances from Coronavirus

Our MMI partners offer some thoughts.
Read More

Six Steps to Financial Success After a Career in Sports

Careful, intentional planning is required to ensure financial wellness well into retirement.
Read More

7 Ways To Reconnect With A Friend You Lost Touch With

Stroll down memory lane. Find a photo album, yearbook, or browse through photos on your phone.
Read More

25 DAILY AFFIRMATIONS TO IMPROVE YOUR MINDSET

Write down words of self-affirmations & reference them daily.
Read More

Why You Should Become an “Intrapreneur”

Find a way to be nice and do good to others and your job will become much more meaningful and enjoyable
Read More

5 Reasons Chronic Pain Interferes with Sleep

And the changes that you can start to make now to improve it.
Read More