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FICO 10 Credit Scores and What You Need to Know

The FICO 10 model will be released this summer and could drop your credit score by 20 points when the model looks at past due debts and balances.

A credit score plays a big role in determining interest rates and terms when you apply for a loan or credit card, and even whether you get approved at all. So the new FICO® credit scoring models announced on January 23rd may have you wondering how this will affect your credit score. Read on to learn how and why your FICO® score☉ may change later this year.

Have Questions About your credit score? Schedule A FREE CONSULTATION with one of our credit consultants.

What's Different About the New FICO® Scores?

Fair Isaac Corp., commonly known as FICO®, has built a new suite of scoring models that will be available from all three credit reporting agencies (Experian, TransUnion and Equifax) t The new models will treat late payments and debt more severely, but will also now consider historical information about your credit card balances and payment amounts. Your FICO® Score will likely change as a result.

The FICO® Score 10 Suite, which includes the FICO® 10 Score and the FICO® 10 T Score, is the first redevelopment of the company's credit scores since 2014 when it released FICO® Score 9. And while new versions of credit scoring models tend to treat information similarly to prior versions, FICO® 10 includes several meaningful differences that are important for you to understand.

FICO® 10 T Considers Trended Data for the First Time

The FICO® Score 10 Suite continues to consider the five main factors used in previous FICO® models to determine the FICO® Score: payment history, debts, credit history age, credit portfolio and new credit accounts. However, the FICO® 10 T version expands into new territory with the goal of giving lenders a more accurate assessment of your credit risk. FICO® 10 T does something no other Experian FICO® Score has ever done: it takes your trending data into account. Trend data, sometimes called time series data, is information on your credit reports that shows how you managed your accounts over the past 2 months and creates a picture of your financial situation over that time.

The FICO® Score 10 Suite will continue to consider the five main factors used in previous FICO® models to determine your FICO® Score: payment history, amounts owed, age of credit history, credit mix and new credit accounts.

The FICO® 10 T variant expands into new territory, however, with the goal of giving lenders a more precise assessment of your credit risk. FICO® 10 T does something that no other FICO® Score offered from Experian has ever done: It considers your trended data. Trended data, sometimes called time-series data, is information on your credit reports showing how you've managed your accounts over the previous 24 months, creating a picture of your financial situation during that time.

Credit card account trend information that appears on your credit reports includes your balance, minimum payment, and the amounts you paid on your most recent credit card statements over a 2 -year period. This allows the credit scoring model to distinguish between consumers who pay their credit card debt in full each month (known as "transactions") from consumers who carry balances from month to month. Consumers who pay off their credit cards in full each month are generally considered lower credit risks than those who go over their balance each month.

Trend data also allows the credit score model to determine whether you are reducing, maintaining or increasing your balance over time. These factors are factored into the latest scoring models because they help predict credit risk, allowing both consumers and lenders to make more responsible credit decisions.

"FICO® invested in developing both FICO® 10 and 10T, rather than a single score, to give lenders unprecedented flexibility to choose the approach that works best for them," said Ethan Dornhelm, vice president of scoring and predictive analytics. In FICO®.

What does this mean to you? To make trending data work in your favor and not against you, it's even more important to pay your bills on time and pay back, or rather, pay off your credit card balances well in advance of future credit applications. These trending charges will appear on your credit reports, and your FICO® 10 T and VantageScore 4.0 will likely reward you for reducing your balance. Of course, you also get the added benefit of saving money on interest charges.

Credit Card Debt Will Have a Bigger Impact

One of the most important measures that credit scoring systems consider is the amount of your credit card balance compared to your credit limits. This is called "credit utilization" and is calculated by dividing your credit card balances by your credit limits. For example, if you have $5,000 in credit card debt and $10,000 in credit, your utilization rate is 50%. The lower the percentage, the better it is for your overall credit score. While credit utilization has long been a part of credit scoring models, its impact is stronger with FICO® 10.

Have Questions About your credit score? Schedule A FREE CONSULTATION with one of our credit consultants.

Personal Loans Might Lower Your FICO® 10 Score

Earlier reports about FICO® 10 indicated that personal loans would be treated differently than previous versions of FICO® and that consumers could be penalized simply for having personal loans on their credit reports. This is a significant difference from how FICO® Scores have traditionally treated personal loan scores.

"While using an unsecured personal loan involves some risky consumer behavior, there are also situations where a consumer's FICO® 10 and FICO® 10 T scores can benefit from an unsecured loan," says Dornhelm.

One notable exception, however, is when you use those recently paid-off credit cards to make new purchases—creating new balances as well as paying off your consolidation loan. In this situation, your score will likely fall below FICO® 10. This underscores the importance of avoiding the scenario where you pay off credit card debt with a personal loan only to find yourself in credit card debt again.

  • If you have a good credit report and good FICO® Scores already, you're likely to have an even higher score under FICO® 10. Consumers with good credit will tend to score higher under the newer scoring models.

  • If you have poor FICO® Scores already, you're likely to have a lower score under FICO® 10. Consumers with poor credit tend to score lower under the newer scoring models.

  • If your credit report at any of the credit reporting agencies does not qualify for a FICO® Score, your credit report will not qualify for a score under FICO® 10 either. Credit reports must meet a variety of minimum data standards to be considered "scoreable" under any of the FICO® credit scoring models. In early 2020, however, Experian will begin offering Experian Lift to lenders, which will help them to score a consumer with no traditional credit file. This could help more consumers qualify for credit products.

  • The FICO® Score 10 range will be the same as previous versions of FICO® Scores: 300 to 850

  • If you use Experian Boost®ø as a strategy to improve your FICO® and VantageScore credit scores at Experian, this will also continue to work with FICO® 10 and 10 T.

Have Questions About your credit score? Schedule A FREE CONSULTATION with one of our credit consultants.

Knowing your credit score is very important. Your Credit rating can determine your employment and quality of living. Negative items reporting will cause denials and low score ratings for consumers. At Valiant Credit Services we specialize in credit disputes to help clients remove negative items through our credit repair services and also improve our clients scores as part of the credit education process. Contact us today to get clarity on your credit report and credit score. You can Schedule a FREE consultation with a Senior Credit Consultant today. CLICK BOOK NOW OR CALL 866-373-1377.

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