There’s a new FICO scoring model (Sheriff) in town!

Your borrowing power revolves around several factors such as your FICO Credit Score, your debt-to-equity ratio, and how many open collections a person may have. FICO, or Fair Isaac Corp., plays a huge role in helping the lending sector determine risk.  

Just recently, Fair Isaac rolled out its newest version of the scoring model, FICO 10 or 10T.  FICO generally looks at scoring model changes every few years, and the last change was made in 2014 when it introduced FICO 9. 

Why another change?

The scoring model change reflects a shift in U.S. lenders’ confidence in the economy.  Although consumer loan losses have been relatively low in the past 10 years, debt is exceedingly high. People are relying more heavily on credit card debt to sustain their way of life.  Recently, a study showed that most Americans have less than $1,000 saved in case of an emergency.  So although the economy has improved widely over the past 10 years, debt load remains a huge problem.  Americans carry more debt (higher loads) than ever.

In the last five years or so, scoring models and algorithms were added or enhanced to help increase consumer scores, helping ease lending requirements and widen the scope of loan applicants.  Credit Bureaus added products such as Experian Boost which helped some people get those remaining few points they needed to get approved for a loan by “boosting” their Experian score.  Equifax had a similar product as well.  These products were created to help lenders increase loan opportunities.  

The economy is great…right?

 The most recent concern from lenders is that borrowers may appear to be more creditworthy than they actually are; thus the need for the stricter algorithm. David Shellenberger, Vice President of scores and predictive analytics at FICO recently was quoted in The Wall Street Journal as saying, “We definitely are finding pockets of greater risk”. Now for the crackdown!  In the past, your debt load wasn’t factored into your FICO score as much as it will be with the new FICO 10 Suites.  For those who are not managing their credit card debt well, their scores will go down, and this will make it harder to get a loan. Those who keep debt low, make their payments on time and are good at managing their finances, their scores should rise.  

How will this affect me?

A lot will depend on which FICO scoring model a lender chooses. Some lending institutions can choose to use a competitive model such as VantageScore, Credit Builders monitors client accounts using the educational version of VantageScore 3.0).  The new FICO 10 T scoring model will place more emphasis on late payments or those consumers who have recently stopped making payments.  Those with current FICO scores of 680(+) and who continue to maintain their good payment history are more likely to keep a higher credit score with FICO.  Those with scores of 600(-) and below who miss payments or continue to get negative marks in their files will experience bigger score declines than under previous models.  Creditors will be more likely to grant less credit to those in this category.  Those who also repeatedly ask for new credit (increasing credit inquiries) will see scores drop. Those who have not had a delinquency in the last year may see a score increase.  The new FICO 10 Suites will also assess the consumers’ debt level (increases) and how it has changed over the past two or so years. Credit utilization levels will still carry an impact on scores; however, if it looks like if the debt is carried for longer periods of time or a consumer’s debt level rises significantly, it will have more of an impact on your score.  It will be important for consumers to continue to watch their utilization rates and continue to pay off their balances monthly.  Those consumers who used the trick of transferring credit card debt to a  personal loan, only to then turn around and charge on those paid off cards, will be penalized.  Consumers who carry a larger credit card balance in one specific month, but then turn around and pay it off,  won’t be as affected with the new model. Paying on time is very important in any scoring model.  This equates for 35% of your score   Credit Builders advises their clients to enroll in autopay on all revolving accounts.  Timing is a factor in this new model.

No two credit reports are alike.

I would also just like to add the credit scores you see are different than the credit score or credit report a lender purchases.  The report a lender purchases are more detailed than the report you will get through a credit monitoring site (not many people are even aware of this).  So although it is always a good idea to have a credit monitoring service help you keep track of what is happening inside your credit file, it’s also good to ask for a copy of the report the bank received from FICO.  Always look for inaccuracies or accounts that may not be yours!  It’s as Important as keeping debt low and payments on-time! If you see weird or unusual items on your report, it may be a representation of credit fraud, so it is vital you’re aware of what is on your report.  Credit Builders has experience helping people dispute accounts that have been placed on their credit reports by filing affidavits with the proper authorities.  If you have not looked at your credit report in a while, you should.  Credit Builders suggests viewing your report at least every quarter.  Consumers are by law, entitled to one free credit report each year, from each credit bureau.  You can get your free credit report by visiting the FTC website.  If you would like to review your three credit bureau report with Vantage 3.0 scores, you can get a $1-7 day free trial by visiting: Identity IQ

In my opinion…

 So, if you are one of those people who have a great FICO score, congratulations!  And, if your scores are, shall we say, in the toilet, you still have time to really dig in and work on improving them (there are three of them, Equifax, TransUnion, and Experian). The new FICO scoring suites are not scheduled to be released to agencies until Summer 2020. You have some time to set your financial goals and start living in financial peace. We know you can do it!  All it takes is determination, planning, and personal investment, And…Credit Builders will always be there to help should you need us!

Who you gonna call?

If you are interested in learning more about how FICO is calculated, or you need help navigating through your credit file or want to increase your credit scores,  consider calling Mya Goodman at Credit Builders.  Mya is an entrepreneur who has over 35 years of small business financial and credit expertise.  She has a BA from Boise State University and is the President and CEO of Credit Builders.

Mya Goodman

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