New FICO Credit Score Changes - What to Expect

credit score concept mobile phone

Fair Isaac Corp. has announced FICO 10 and FICO 10 T, the first new credit models since 2014. Starting in summer 2020, there are some big changes that can potentially have a drastic affect on your credit score

Predictions state that roughly 110 million consumers will see a change in their credit score under this new model, an average of 20 points up or down, and possibly as much as 50 points.

The purpose of a credit score is to determine your credit worthiness and ability to pay off your debts. Is the new model a step in the right direction, or will it make loan and credit approval more difficult for consumers?

Here’s what you need to know. 

credit score weight model

At first glance, the basic factors that determine your credit score remain the same, with payment history being the largest factor, and closely followed by outstanding debt (credit utilization ratio).

However, a closer look at these numbers shows major changes in how your payment history and debt load is evaluated.

Under FICO 10, they will look at data for the past 24 months for every borrower, to identify trends, and show your historical credit behavior. It aims to give a holistic view of a person’s finances, and whether you have been paying down debt over time, or incurring or increasing new debt.

The new model also puts a heavier influence on how installment debt (personal loans, line of credit, mortgage) affects your credit score, as opposed to previously relying on revolving debt (credit cards).

How Soon Until the New Changes Take Effect?

While an exact date for the new FICO 10 scores hasn’t been set, it’s expected to be available for use by the three major credit bureaus (Equifax, Experian, TransUnion) by summer 2020.

Official adoption by lending institutions such as banks or credit unions can take months, a year, or even longer.

Why is this?

Lenders assess risk using credit scores as the foundation of their review and approval process. A change in the credit model used means they would have to update their underwriting policies and procedures, which can be a big undertaking. 

A change in credit score models could pose a significant risk, since it’s all based on prediction and not proven data. Lenders may be reluctant to update their procedures without sufficient evidence.  

Even though FICO 9 has been out since 2014, most lenders still use the FICO 8 model (from 2009) for their lending decisions, and even older versions of FICO for mortgage loans. 

This being said, FICO expects lenders big and small to adopt and implement the new FICO 10 model by the end of the year.

What Can I Expect from the New FICO Changes?

Everyone’s situation is different, and it remains to be seen how much your individual credit score will be affected.

You can, however, ask yourself a few questions to get an idea on what it can mean for your score.

1. Do I have more or less debt now than I did in the last 24 months?

Currently there is $156 billion dollars in outstanding personal loan debt in the U.S. Personal loans are the fastest growing category of debt, increasing 42% since 2015.

Does this mean that taking out a personal loan will decrease your credit score? No, it does not. 

It does mean that with the new model, if you consolidated your credit card debt to a personal loan, only to then rack up your credit card debt again, then the total increased debt will result in a lower credit score. 

2. Do I have any missed payments in the last 24 months?

Payment history is the highest weighted factor in your credit score. The new model extends the “look back period” to 24 months, to identify a consistent pattern in making on-time payments, therefore, missed or late payments may cause your credit score to take a bigger hit than before.

FICO 10 rewards good credit behavior, such as on-time payments and reducing your debt. Making on-time payments alone isn’t enough to increase your credit score, or even maintain your score. If you only pay the minimum amount each month, you may see a dip in your credit score. FICO 10 is about showing that you have the ability to pay down, and pay off your debt.

Bottom Line

If you have an established history of good credit habits, on-time payments, and low credit utilization ratio, you’ll probably see a boost to your credit score under FICO 10.

If you have missed payments, increased debt, or difficulty reducing your debt, then you’ll probably see a decrease in your credit score.

With FICO 9, your score can vary based on the current month payments and debt compared to the prior month. Under FICO 10, it may take longer to raise your credit score on an ongoing basis given the consideration of averaging your score based on the prior 24 months history.

You may initially see a change in you score come summer 2020 when it’s officially available for use by the credit bureaus. 

However, you may not see any difference at all in real world application unless it’s quickly and widely adopted by lending institutions. If lenders remain on FICO 8 or 9 when determining credit approval, then it won’t be any less difficult or easier to obtain a loan than the current process.

What are my personal thoughts? 

It may be painful for some consumers at the beginning, but I believe the FICO 10 changes can better reward those who emphasize good money habits and prioritizing debt reduction. It won’t be as possible to “game” the system by taking out a loan to hide or mask total debt. 

Those of us who closely follow our credit score will need to establish healthy money management habits to keep our scores high, and the benefits that come along with a good credit score. Being financially responsible should be a goal for all of us.

If the FICO 10 model succeeds as intended, by accurately reflecting financial decisions, then I’m completely on board with it.


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