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FICO 10: What to Expect and How to Make Your Credit Shine

FICO's new credit score suite includes a model that emphasizes changes in debt levels over the past 30 months.
Feb. 26, 2020
Credit Score, Personal Finance
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FICO’s newest credit scores, announced in January, led to some alarming headlines warning that 40 million people could see their scores drop by at least 20 points. That’s scary if you think you’ll be among them.

But it’s unlikely to become the dominant score anytime soon, and even if it does, there’s plenty of time to prepare.

It’s also worth noting that 40 million consumers could see scores increase by that much. And 110 million would likely see a difference of less than 20 points.

Here’s what to know about FICO’s newest scores, plus tips on making your credit profile shine.

What’s different about FICO 10 and FICO 10T?

FICO updates its scoring models about every five years, says Dave Shellenberger, vice president of product management. Algorithms are analyzed and updated to better predict risk. This is the first time the company has offered two versions of a general FICO score, announcing FICO 10 and 10T.

The score that got consumer attention is the FICO 10T — T stands for trended data. It’s a departure from previous versions because it looks back at up to 30 months of past credit data to predict consumer behavior. If you think of a traditional FICO as a snapshot, the 10T would be more like a short video. FICO competitor VantageScore likewise introduced a score using trended data, version 4.0, in 2017.

FICO 10 is being offered with and without trended data because that’s what lenders wanted. The FICO 10 uses the same reason codes as previous versions and can be easily adopted because it is “backward compatible,” Shellenberger said. The FICO 10T is more predictive, but it requires some new reason codes and so will take more time and money to adopt.

Lenders are looking more closely at potential borrowers now for several reasons. The economic expansion that had allowed them to loosen standards a bit is bound to come to an end, and some experts think that will be soon. Also, lenders no longer have a view of how consumers managed the last economic crisis, which started in late 2007, because most derogatory marks fall off credit reports after seven years.

When will lenders start using the new FICO scores?

FICO 10 scores won’t be available for use by the three major credit bureaus before summer.

Adoption by lenders will take longer, Shellenberger said. It can take months or “usually longer for large lenders — a year or so.”

Right now, most lenders still use the FICO 8 for most non-mortgage lending decisions. For mortgages, FICO 2, 4 or 5 are used.

How will FICO 10T likely affect my score?

Remember that most people won’t see a big change.

But if you’re among the 40 million who could see a drop of 20 points or more, that’s significant — it could result in being denied for a loan or having to pay a higher interest rate.

Your score is most likely to drop if:

  • You took out a personal loan to consolidate credit card bills, but now your card balances are up again or it appears you have applied for additional credit.
  • You are using credit cards to get by — and you just can’t seem to whittle the balances down, or they’re growing.

On the other hand, some people could see their scores rise by 20 points or more. Your score is most likely to rise if you have been penalized for occasional high balances. Shellenberger gave an example: If you typically vacation in July and put airline tickets, hotel and meals on a credit card — and then pay it off — the trended data won’t penalize you as much. It looks at balances over time and sees you bringing a temporarily high balance down.

If I am worried, what should I do?

Pay down balances on credit cards. Consistently high statement balances — or rising balances — can suggest financial difficulty. If you are paying off your bills monthly but have high statement balances, make frequent payments throughout the month. That keeps your balance low no matter when it’s reported to the credit bureaus.

If you don’t already have an emergency fund, start one. If you have to turn to credit cards in an emergency, your rising balances could hurt your scores.

If you are thinking of consolidating credit card debt with a personal loan, avoid charging up the credit card balances again; FICO 10T will penalize you for it.

How can I look good no matter what score lenders use?

Make no mistake: Lenders want to find creditworthy applicants. They just want to minimize the risk that they’ll approve customers who won’t pay as agreed.

The ways to polish your credit profile have not changed:

  • Pay every bill on time.
  • Keep credit card balances low relative to your credit limits.
  • Be judicious about applying for new credit. A flurry of new applications can suggest financial distress.
  • Keep old credit card accounts open unless you have a compelling reason to close them, such as a high annual fee. They contribute to your overall credit limit, which benefits a large scoring factor called credit utilization. They also contribute to credit age, a minor factor in your score.

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