It’s time to pay special attention to your credit score because change is in the wind. According to the Wall Street Journal, Fair Isaac, the company behind FICO credit scores, is now updating the way it scrutinizes consumers’ creditworthiness. For some consumers, this can result in a lower score because of a new scoring model.
Growing debt, missed loan payments, and unsecured personal loans will get greater attention, causing some scores to drop. Those with scores above 680 who are on top of loan payments have little to worry about and can see their scores increase, while those with scores below 600 are more likely to see drops.
“One of FICO’s new models, the 10 T, will judge consumers’ debt levels over the past two years, likely calculating lower scores for consumers who carry credit card debt from month to month or get close to maxing out their spending limits,” says Forbes’ Lisette Voytko. “Overall, lenders using the new FICO scores will see a wider gap between consumers viewed as more creditworthy and those who are not.”
She goes on to say that lenders will have a voice in whether to adopt the new FICO scores or use a competitor such as VantageScore. This comes at a time when the average FICO score among 59% of Americans boasts an all-time high score of 703, according to an annual survey by Experian. This represents a 14-point increase from 2010.
“Calculations for FICO scores are updated by the company every few years to take changing consumer behavior into account.,” says Vouytko. “The company measures five with different weights on scores, including the amount the consumer owes, payment history, the length of the credit history, and the different types of credit held, along with how many new accounts have been opened.” She adds that the decade-long economic recovery spurred lenders to seek more borrowers, but also sparked uncertainty over whether consumers were as creditworthy as their scores made them appear, due to negative information from the financial crisis being too old to appear on reports.
So if your score is already high, take heart. You’ll be fine. If, however, you already have several negatives affecting it, it may be time to see what you can do to improve your credit standing.
Source: Forbes, WSJ
