A few weeks go, the Fair Isaac Corp. announced a new credit scoring model rolling out this summer that could change over 110 million consumers’ credit scores. But the changes to FICO’s model won’t alter your score significantly if your credit habits already score well with the company.
FICO is a popular credit scoring model used by companies to assess a consumer’s credit worthiness. A score, valued from 300 to 850 in the FICO model, helps determine what interest rates, car and home loans, credit cards and other financial products and services a consumer is offered.
This new and latest version, called “FICO Score 10 and FICO Score 10 T”, is to be released to credit bureaus this coming summer or early fall. It will feature some broadened elements to the calculation of credit scores.
The latter version, FICO Score 10 T, will utilize what is called “trended data”. As the name suggests, this scoring model will use a wider scope when taking consumers’ financial actions into account. Trended data reveals just how a consumer uses their money and the credit they have available to them.
FICO Score 10 T will analyze and weigh:
- A consumer’s credit habits
- HOW consumers utilize their monies to address their debt(s)
- HOW account payments were made over a 2-year period (thus establishing a trend)
- Delinquencies (if any), will be weighed more harshly than in the past
- The RATIO of Debt Utilization VS Available Credit
- The LENGTH of a consumer’s credit history
- Personal Loans, often seen as riskier, will now be flagged and considered
- The “cocktail” or mix of your credit usage
Just how much benefit a consumer realizes (or doesn’t) from this new credit scoring model will be mainly dependent on how they’ve handled their credit/debt over a trended data 2-year window.
- If a consumer has managed their credit/debt well, utilized lesser amounts of available credit, and avoided payment delinquencies … they may see a small modest boost in their credit score
- If a consumer struggles with the management of their credit/debt, has higher credit utilization ratios (higher balances) or has late/missed payments … they will most likely see a drop in their credit score
FICO estimates that about 110 million consumers will see a change of less than 20 points to their score under the new credit score model. Overall, roughly 80 million consumers will see a change in score of 20 or more points in either direction, upward or downward, FICO says.