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What the new FICO model means for you

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"Lenders will be looking at whether you are managing your debt in a way that indicates you are taking on more than you can handle."

How is the FICO 10 Suite different than the previous models?

The model behind the FICO 10 and FICO 10T will place more emphasis on how you are using your lines of credit and if you are paying them off in a timely fashion, says Bruce McClary, vice president of communications for the National Foundation for Credit Counseling (NFCC).4

“Lenders who use a FICO 10 model will be looking at whether you are managing your debt in a way that indicates you are taking on more than you can handle," he explains. “That could mean you have too much debt, or that you are continuing to take on more debt even after consolidating your debt."

While both new scoring systems will weigh your debt more heavily, FICO 10T will look at the past two years to see how you've managed debt over a period of time, compared with other FICO models that only account for the previous month.

This type of variation is typical every time a new FICO model is released. Here are some highlights on how FICO 8 and FICO 9 stand out:3

FICO 8: Although all FICO scores deduct points for high credit card utilization, this model weighs this element more highly than previous models. And while late payments also count against your score, FICO 8 is more forgiving of an isolated late payment — but less forgiving of multiple late payments — compared to previous FICO models.

FICO 9: Unpaid medical bills negatively impact your score less significantly than other types of late payments with FICO 9. On-time payment of rent, if you can get it registered on your credit report, can be especially helpful for those with little or no credit history.

What does the new FICO 10 model mean for you?

FICO expects the majority of borrowers– those in the middle – to see little change in their credit score with the new models. However, about 40 million people who already have good scores could see a gain of roughly 20 points, while 40 million with lower scores (below 600) could see a similar-sized drop.

“While [credit habits] are already factored in current scores in some way, this new change means there will be an increased emphasis on these behaviors," McClary explains. "The FICO 10 Suite will more strongly penalize consumers who are overleveraged or falling behind and will more strongly reward those who either have a history of keeping their debt under control or are working hard to pay down debt and create new habits."

One group of consumers who are at risk of having their credit scores negatively impacted by FICO 10 are those who consolidate debt from multiple credit cards into an unsecured personal loan with one fixed payment. While this can be a smart strategy to help pay off your debt more quickly (the interest rate is usually lower), the new FICO model will be looking more closely at what you do after you consolidate your loan.

    When will the FICO 10 Suite take effect?

    Although the new score is set to roll out this summer, there's no indication when — or even if—lenders will adopt it, McClary says. That's because each lender makes an individual decision regarding which version to use. The pace of adoption can be slow; for example, FICO 8 (released in 2009) remains the most widely used version3 even though FICO 9 was introduced in 2014.

    “We have no way of knowing how it will unfold. Lenders have the final say in the scoring system they use," McClary says, adding that the options extend beyond the many FICO models to proprietary scoring systems and competitors like VantageScore.6

    "This announcement may not directly impact all borrowers in the near future. However, for people who might be further penalized by FICO 10, the news can serve as a wake up call that it's time to get their financial house in order," McClary says.

    How can I get ready for the FICO 10 Suite?

    The most important thing you can do is maintain good credit habits, such as paying your bills on time and keeping your credit utilization — that is, the amount of your available credit — below 20%, McClary says. He suggests that people who believe they might be at risk for a score dip based on their current behavior create a plan now to pay down their debt balances and get any past-due accounts back up to date.

    It's also important to check your credit score to see where you rank. If your credit score is low, dig into your credit report and find out why. Sometimes the issue isn't late payments but a thin credit file. If that's the case, focus on building a strong credit history. When you review your credit report, it's good to fact-check the report to make sure there aren't inaccuracies. And if you do have a question, you'll want to reach out to the corresponding credit bureau:

    And finally, anyone who takes out a personal loan to consolidate their credit card debt needs to be even more careful about avoiding future debt. McClary says he frequently sees people paying off their credit card balances through consolidation, but then resume racking up debt on their credit cards. “The problem is not the loan itself but what you do after you get it."

    If you're concerned about your current debt and how the FICO 10 Suite might affect you, McClary recommends talking to a nonprofit credit counselor,10 a financial professional who will look at your own personal situation and help create a plan to address it.

    Important Disclosure Information

    This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

    1. https://www.myfico.com/credit-education/fico-scores-bridge, accessed February 20, 2020. Back
    2. https://www.myfico.com/consumer-division-of-fico.aspx, accessed February 20, 2020. Back
    3. myFICO.com, “FICO Score Versions: Did You Know You Have More Than One FICO Score?" Accessed February 20, 2020. Back
    4. https://www.nfcc.org, accessed February 20, 2020. Back
    5. Tara Siegel Bernard, “Your Credit Score May Soon Change. Here's Why." New York Times. Published January 25, 2020, accessed February 20, 2020. Back
    6. https://your.vantagescore.com/?msp=1, accessed February 20, 2020. Back
    7. https://www.equifax.com/personal/credit-report-services/credit-dispute/, accessed February 20, 2020. Back
    8. https://www.experian.com/disputes/main.html, accessed February 20, 2020. Back
    9. https://www.transunion.com/credit-disputes/dispute-your-credit, accessed February 20, 2020. Back
    10. https://www.nfcc.org/locator/, accessed February 20, 2020. Back