Update: Upcoming FICO Changes
Consumers struggling with their finances may need extra help when new scoring models are implemented.
FICO adjusts its credit score modeling every few years to adapt to consumer behavior. This summer, FICO 10 and 10 T will roll out. What does the T stand for? "T" is for Trend. These modeling changes will reflect new trends in credit use, having the largest impact on those who are struggling financially.
According to Experian reports, personal loans have boomed in popularity in recent times. Lenders are offering personal loans to consolidate other higher-interest credit, and this increase in demand is a trend that FICO has noted. In this scoring change, FICO has separated personal loans into their own category for the first time. Distinguishing personal loans as an individual category will place heavier emphasis on them, impacting consumers with the most need for assistance in lowering debts.
After these changes take place, credit unions will have a longer view (24 months) of borrowers’ credit history. As a result, those who pay off their credit cards every month will likely see positive score movement, versus those who are struggling with minimum monthly payments. This change will also increase penalties for recent late payments and high credit balances for extended periods. Although it may impact some scores in a negative way, these FICO credit scoring changes were necessary for a more accurate view of a borrowers’ willingness and ability to repay.
Here’s the bottom line: Though the scoring model is changing, basics of building good credit have not.
Make sure to be aware of credit limits, payment due-dates, and application frequency. In other words, the following will poorly impact your credit score:
- Consistently holding high balances
- Paying late
- Submitting credit applications too often
Looking to buy a home? Just make sure to make payments on time!
Interested in home improvement? Since personal loans will be in an isolated category, consider taking out a Home Equity Line of Credit instead. It's a running line of credit against the value of your home. In other words, a more secure loan. Check out more details here.
Remember, every on-time payment is a small step in the right direction. Building your credit score is not always a staircase to a great score. In fact, sometimes progress is closer to a roller coaster ride. Just know, we're here for you through the ups and the downs!
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