Fair Isaac Announces FICO 10 Credit Score Model
When it comes to taking out a mortgage or applying for a new credit card, most Americans are likely aware that they’ll be judged by their credit score. However far fewer may realize that there are actually several models under which their creditworthiness may be scrutinized. Now the Fair Isaac Corporation — the company behind the most-used credit scoring models known as FICO — have announced some impactful changes that will come with their FICO 10 and FICO 10T scoring models.
According to Consumer Reports, FICO 10 will put more of an emphasis on the total amount of debt a consumer has. Additionally personal loans will be separated out as their own category of debt. As a result the new model will penalize those who consolidate credit card debt through a personal loan but then continue to build up card balances. Meanwhile the FICO 10T model will reportedly widen the amount of history creditors look at. Instead of seeing a snapshot for the current month, this model will assess credit card balance trends from the past 24 months.
Fair Isaac says it expects that 110 million consumers will see their scores adjusted by fewer than 20 points under the new model. However they also anticipate that 80 million will see either increase or decreases larger than that. Of course it’s important to note that not all lenders will utilize the new model — especially not at first. In fact, despite FICO 9 being released in 2014, 2009’s FICO 8 remains widely used according to Consumer Reports. As a result these stated impacts will vary.
In a statement regarding the changes FICO vice president of product management Dave Shellenberger said, “Those consumers with recent delinquency or high utilization are likely going to see a downward shift and depending on the severity and recency of the delinquency it could be significant.” He added that “people with good credit are going to score higher, and people who have elevated risk are going to score lower. That’s just a more realistic way of assessing risk.” Additionally, speaking to the need for the update, Shellenberger explained to the Wall Street Journal, “There are some lenders that see there are problems on the horizon in terms of consumer performance or uncertainty [about] how long this [recovery] is going to go. We definitely are finding pockets of greater risk.”
Although these upcoming developments might put fear into some consumers, it seems that those who are already practicing good credit habits have little to worry about. For example, making on-time payments will remain the single largest factor in determining your score. Similarly consumers should already be mindful of their credit utilization, which the new model further highlights. Ultimately we’ll need to wait for these new FICO models to be adopted by creditors before we can fully understand what impacts they may have. In the meantime, it’s always a good idea to check out sites like Credit Karma or WalletHub to better understand your credit and how to improve it.
Also published on Medium.