What FICO 10 Means for Your Credit Score
Do you like your credit rating? The new valuation model could change this, but probably not drastically. FICO announced today the rollout of FICO 10, the latest version of its scoring model used by lenders to calculate your credit score.
In fact, there are two versions available: FICO 10 and FICO 10 T. The latter gives an idea of the use of your credit over the past 24 months, taking into account the history of elements such as your account balances. (VantageScore already does this with VantageScore 4 , its latest version.) This version is more likely to affect your score, which is usually a snapshot of your activity rather than a holistic view.
FICO expects about 110 million people to see their estimates move “less than 20 points” in either direction in line with the new model, according to CNBC . Consumers who have received personal loans are more likely to see their ratings drop, as a personal loan is considered more risky than a student loan, as well as a car or home loan.
You will most likely notice a change in your rating if your lender uses FICO 10 T and you had a credit error last year – for example, a 30-day late payment.
“They will try to smooth out the peaks and valleys,” explained Ted Rossman, industry analyst at CreditCards.com . “A temporary spike in spending, like a vacation or holiday shopping, won’t hurt your credit score as much if you tend to keep your credit utilization low.”
Matt Schultz, chief industry analyst at CompareCards , said being able to track trends over time is important, even if it might seem awkward. “It’s a lot easier to make informed judgments about someone’s finances when you can watch them change trends over a number of months than to look at each month in a vacuum. It’s like when your child wants to borrow the car keys, ”he said. “If the child has treated them responsibly and without incident for months, you will be pleased to pass them on. If your child is mostly doing well but has a speeding ticket and a few missed curfews in the past year, you may not be so gullible. “
Knowing that you can get grades with this new version can encourage you to pay extra attention to your credit history.
The FICO 10 Suite will be available to lenders this summer, so you won’t see any change in your assessment until the lender uploads your credit report through the new version. If you can view your FICO score through your bank account or credit card issuer, they can use whichever version they like to create your score. For example, Bank of America uses the FICO Score 8.
If you use a free service like Credit Karma, you may not even see the FICO score – many financial services still use VantageScore 3 to generate credit scores.
Thus, it is less important to worry about the scoring model and version that lenders are using, and more important to focus on your good financial habits.
“None of these steps change the fundamentals of lending,” Schultz said. “Good credit still lies in three things: paying bills on time every time, keeping account balances to a minimum, and not applying for too much credit too often. Do these three things several times over the years and your reputation will be in order. “