On the 24th of January, 2020, FICO declared their latest rendition of FICO score which is a 3-digit number that determines the credit risk of an individual. This new model for scoring will take into account the debt levels of the consumers and will closely monitor personal loans. The previous model for calculating your score used to take screenshots of the payment history of an individual and the new version will determine a historical review of the payments over a long period of time and include several other details that include account balances for the last two years. This whole idea has been introduced to give lenders a better idea on how the borrowers have been in handling credit.
More than 80 million people will witness a shift in their FICO score by around 20 points or more and while half of them will see their scores increase, another half would find their scores to decrease. People who have been living with high level of credit card debt as against their overall credit would see an even bigger drop.
The FICO scoring system – How is it changing?
The reports from Yahoo! Money reveal that this is undoubtedly one of the biggest updates of FICO Score 10T. The main change is that it won’t just consider your credit balance at the present moment but over the last 24 months. In case you’ve constantly been delinquent on your payments leading to an increasing balance, your score will go down. On the contrary, if your balance jumps high in just one month due to a vacation or a birthday celebration, FICO won’t bring that under consideration.
FICO’s changes will reflect the specific trends in which people rack up debt. Did you just take out a debt consolidation loan to combine your high interest loans? If answered yes, you’re surely into the bad books of FICO as they will give a disapproving look at this spending behavior as you’re racking more debt to pay off your previous debts.
When the experts were asked about their opinion on the FICO score changes, they reported that this new version would lead to increased disparities in credit scores. Suppose the lenders adopted the 10T version, the consumers who are already on a good track to boost or repair their credit score by triggering off their debts, would find their score to improve. On the other hand, people who have been taking on debt, even though not by a massive amount, would see their credit scores fall. So, if you’re struggling to uplift your score to the next range, even a fall of 20 points would mean a lot for you.
The new FICO score changes – When are these changes coming?
Fortunately, the changes aren’t going to come into effect very soon and you can wait till summer 2020 to find an impact on your credit score. FICO has given you few months’ time to figure out the way in which you will be hit by this new scoring model and what your defense plan should be. Although the new FICO system has been released, all lenders aren’t going to adopt it. Equifax will begin to use FICO 10T instantly but FICO 8 will still remain the most-accepted model for the lenders.
Keep ordering your credit score from annualcreditreport.com so that you may check for unnecessary discrepancies.