The upcoming launch of FICO’s latest credit score will start incorporating consumers’ debt levels into their scoring model.
Sourced from: www.cnbc.com
Today, Fair Isaac Corp. (the company responsible for the popular FICO credit score) announced changes to how they will determine credit scores going forward. The new model, FICO 10, will now incorporate consumers’ debt levels. This means that people who are already struggling to pay off their debt, especially those who miss payments, may start to see lower FICO credit scores.
The intent of the changes is to more accurately calculate risk. Consumers who have higher debt levels, more missed payments, and unsecured personal loans may see the biggest drops in their score. However, consumers who already have high credit scores and continue to pay down their loans on time, will see even higher scores than before. This will create a wider gap between good and bad credit risks. Perhaps now more than ever, it’s important to clean-up your credit and practice smart financial habits.
FICO estimates that approximately 110 million consumers may see their credit score change with the new model, but only by about 20 points up or down. Approximately 40 million may see an increase of more than 20 points, while another 40 million may see a decrease in their credit score of more than 20 points.