What Does the New FICO Score Mean for Borrowers?
How will the new FICO Score 10 Suite models affect your credit score?
During the first month of 2020, FICO announced two new credit scoring models collectively called the FICO Score 10 Suite. The leading credit scoring company is optimistic that these new models will give lenders the insight to make more precise lending decisions by incorporating different types of data. But, what does this mean for borrowers?
Here's everything you need to know about the new FICO score so you can continue to improve your credit.
What is FICO 10?
The biggest change included in the FICO Score 10 Suite is that the 10 T model incorporates trended credit bureau data to help lenders with their decision making. With this information reflected in a credit score, lenders will hopefully be able to reduce the number of defaults in their portfolio by as much as 10%.
By evaluating a borrower's credit score on all credit lines, including mortgages, auto loans, credit cards and personal loans across their entire credit lifecycle, lenders can better predict their risk and control default rates.
While this is good news for lenders, borrowers could also be seeing a change in their FICO credit score with the new model.
Continue to pay down your credit card debt to improve your score.
How it could it affect your score
The inclusion of two years of trended data gives lenders better insight into a borrower's financing habits and will have major effects on existing credit scores. In an interview with Joanne Gaskin, VP of scores and analytics at FICO, NPR learned that about 40 million Americans will likely see their credit scores drop by 20 points or more. The good news is, an additional 40 million will likely see their scores go up by as much.
Simply put, with this new addition of trended data, those who have paid off their debts will likely be rewarded with a higher score and those who have incurred debt may see their scores drop. Luckily, this new model will not be in use until the summer, so borrowers still have time to take steps to improve their credit scores.
Improve your credit score across models
U.S. News and World Report pointed out that the FICO 10 Score 10 Suite still uses many of the same weighted elements to determine a borrower's score. These include:
- Payment history - 35%
- Credit use - 30%
- Length of credit history - 15%
- Credit mix - 10%
- New credit - 10%
Just like with other credit scoring models, if you continue to keep your outstanding balances low and pay at least the minimum amount on your credit on time you can improve your credit score. As payment history is still the most important factor in a FICO score, make payments on time and consistently pay down your debts as opposed to moving them between cards.
With trended data, lenders will be able to pick up when a potential borrower has truly paid off debts or simply transferred them from card to card, so taking control of your finances is your best bet for receiving a favorable credit score.
To learn more about credit scores, including how to further improve your own, contact your local Vectra Bank representative today.