FICO’s Plan to Change Credit Score Models

( – Your credit score is one of the most important aspects of your financial health. That score impacts nearly everything from your ability to buy a car to whether you can take out a loan. Consumers now fear changes to the way their scores are measured may hurt more than help.

FICO, the analytics company that created the credit scoring model most often used, announced changes to the system, with new versions slated to be released this summer. Traditionally, your credit score ranges from 300 to 850 (the higher the number, the better the score). This summer, however, the company is offering two new scores: FICO 10 and FICO 10T.

FICO says the new scores will make it easier to see if a borrower is likely to default on their loans. Both scores will penalize consumers who decide to consolidate their loans and then go out and create more debt. However, the FICO 10T will also use trended data from a 24-month period to show lenders how a borrower’s scores change over time.

Historically, if someone wanted to buy a house and had an iffy credit history, they might polish their score before seeking out a mortgage. That means they’d pay off their credit cards, pay old defaulted loans, etc. The F10T trended scores will reflect those behaviors, which may make lenders hesitant to hand out loans.

FICO believes the scores will help about 40 million people who already have good scores or have consistently worked to improve them. Another 40 million would likely see their scores drop by 20 or more points.

Stricter standards might be on the horizon, but even people with not-so-great credit histories have options. Start working on your debt as soon as possible to give yourself the best shot for a future loan. Or polish it now and take your anticipated loan out before the model changes.

~Here’s to Your Financial Health!

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