What does the 2020 change in FICO scores mean?

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You may have already heard, but if not I am here to tell you that FICO scoring is changing in mid-2020 and this may have an impact on your credit score!  

The new FICO credit scoring will be mostly concerned with credit and how it is being used by the individual.  It will be very focused on items like credit cards and personal loans.  They will be looking at overall credit, what is happening with your balances (are they increasing?), timeliness of payments, and how aggressively one is seeking additional credit.  

Approximately 30% of your score is your debt, which is the same as the old model.  You should not concern yourself too much with installment debt as that is relatively benign when it comes to your credit score.  Examples of installment debt are mortgages and student loans.  Of course, you still need to pay those bills on time. What does effect that score is the revolving credit; credit cards, personal loans.  High balances on credit cards, increasing debt and taking out new loans will have a negative impact with the new model.  The FICO 10T is looking at how one’s credit is trending.

Even if you pay your balances on time and pay them off an increase in spending may hit you hard depending upon when your creditor reports to the credit bureau.  Not all creditors report at the end of each billing period they could report in the middle of a billing period and the increased balance may show on your report.  They recommend pay off balances before the due date to avoid getting caught in this.  The longer you carry the high balance the more likely it may get reported to the credit bureaus.

About 35% of your score is derived from your payment history.  Late payments can do a number on your credit score.  Before the FICO 10 it took just a few months to recover from a slip, but with the new model they will be looking back up to two years.

The good news is that since 2015 the credit bureaus have to wait six months before adding any negative medical debt to your report.  They also have stopped adding tax liens and judgements to reports.

What does all this mean?…..it means that if you are someone who pays off your cards each month/keeps your balances low you may actually benefit from the new scoring!  The rest of you should make a concerted effort to make those payments on time, keep whittling away at those balances and stop applying for new credit.

Credit history is necessary for obtaining a mortgage loan, a car loan and any other form of credit but how that credit is handled is just as critical. Less than good credit negatively affects the rate of interest you pay when borrowing.  It is work to get your credit in good standing, but it is an effort that truly pays off!

As for mortgages, they will still be using the old scoring at least for now…the law provides that they have to give plenty of notice if they are going to change how borrowers are qualified.  This will be confusing for some as the credit score you retrieve on sites that provide your credit score may be different than what your mortgage lender provides.

I can provide more insight if you are interested…inbox me.  Also if you need a referral to a lender or someone to help with you with repairing credit issues I can help!