In January, Fair Isaac announced it would once again make changes to the criteria that determines your FICO score. Historically, scoring changes have led to various consumer outcomes, and this update is shaping up to have its own share of winners and losers. So who are they, and what can you expect?
According to the Wall Street Journal, FICO versions 10 and 10T will widen the gap between those in good- and bad-credit standing. If you’re managing your loans responsibly and your current score is in at least the high 600’s, you can expect a slight boost under the new format.
Rising Credit Stars
New to this version is the use of “trended data” to determine scores. FICO 10 will examine up to 2 years’ worth of payment history to calculate positive and negative trends. If your credit behavior is on the upswing, there’s a good chance you’ll be rewarded accordingly.
Those who’ve recovered from past delinquencies
The new model will place a greater weight on consumers who’ve missed recent payments, but could benefit those who have recovered in the past year. Those with delinquencies more than a year old could enjoy a positive boost.
The penalties for recurring missed payments can have exponential consequences, especially if the consumer is already considered a bad credit risk. If you’ve fallen behind on payments, your score could be at an increased risk with the newest score model.
Personal Loan Owners
Consumers often turn to personal loans when looking to consolidate credit card debt. These individuals should beware that the new scoring format will penalize borrowers who continue to accumulate debt with personal loans.
Under the new model, individuals who habitually carry a high credit utilization ratio (that is- the amount of available credit they’re using) are more likely to suffer. This component already accounts for 30% of your score, so it’s increasingly crucial to keep your card balances low.
Always practice credit responsibility
The rollout of these FICO changes could really shake up the game when it comes to your credit. Nevertheless, practicing credit responsibility will always help build your score. If you’ve earned access to credit, always make sure to use it wisely, and you’ll be rewarded.