money FICO Scores Are Changing. Will Your Credit Score Go Down?
New updates to the way FICO credit scores are calculated could make it more difficult for some Americans to get loans. With the changes, you could see your credit score go down — or up.
FICO scores are the most commonly used type of credit score in the U.S. and are used by lenders to determine whether to extend credit to someone applying for a loan. Once the revision is implemented, you'll want to get a free check of your credit score to see if you've been affected.
What's changing?
The new version will take into account credit card usage over a two-year period.
Fair Isaac Corp., the company responsible for FICO scores, has announced a change that will penalize consumers if they allow their debt levels to rise, or if they fall behind on their loan payments, as first reported by The Wall Street Journal.
The update will factor in how a consumer uses credit cards over a 24-month period — and if you tend to carry high balances, your score will take a hit. The new FICO scores also give more weight to unsecured personal loans, which could hurt some borrowers.
Under the new scoring criteria, consumers with good credit scores — 680 or higher — will likely see an increase in their scores if they stay on top of their loan payments.
However, those with fair or poor credit scores — 600 or lower — who miss payments or accumulate debt will see bigger declines in their scores than under previous FICO versions.
What's the impact?
FICO says a minority of consumers will see major changes in their scores.
FICO officials say the majority of consumers, roughly 110 million, will see changes in their credit scores of less than 20 points, either up or down.
Another 80 million will see bigger swings — in either direction.
The changes will widen the gap between consumers who are already considered to be good or bad credit risks, and will likely lead to a shift in the average FICO score, which hit a record high of 703 in 2019, according to an annual report from the credit bureau Experian.
In a news release, FICO says it expects its new system will result in an up to 10% reduction in credit card defaults and as much as a 17% decline in defaults by new mortgage borrowers.
The new scoring model marks a stark reversal from FICO changes in previous years, which aimed to help build scores for people with little or no credit history, and remove certain pieces of negative information — like civil judgments and tax liens — from many credit reports.
It's unclear when lenders will begin using FICO’s new model. But if you’re not sure about the current status of your credit rating, you'll want to take a free peek at your credit score to know where you stand.
