New FICO Model Increases Credit Scores

Kelly Cooke
Published Apr 16, 2024

New FICO Model Increases Credit Scores


Your FICO credit score increased and it has nothing to do with any change in your own personal credit situation.
 

Check your Credit Scores for free! by clicking here


The company that maintains the FICO scoring model is making its latest changes to the system and it will have profound impacts on your credit score. The end result will likely be that if you have strong credit, your score will likely increase. However, if your credit is not as good and you have higher debt levels, you will see a drop in your score. Overall, 110 million people will see a change in their credit score of at least 20 points. Here is some more information about the new FICO scoring system so you have some context and can prepare for the upcoming changes.

 

Credit Scores Have Gotten Almost Too Good


The impetus behind the new scoring system changes is the fact that the economic picture in this country has changed since the end of the Great Recession. In general, the creditworthiness of borrowers has improved. Lenders are extending credit at the highest rate since the end of the financial crisis and consumers are taking advantage of this to pile on debt to near-record levels.

As a result, lenders are exposed to the possibility that they can face numerous defaults in the event of a future recession. The amount of loans and debt that are currently open presents a possibility that loan default can sink a bank's balance sheet and cause a rerun of the distress that financial institutions faced one decade ago.

Now, banks want to know that consumers have the ability to be able to pay off all of their debts, and they want a window into the consumer's overall debt picture before they extend credit. As a result, Fair Isaac is incorporating changes into the FICO scoring model. The latest release of the FICO model is trying to separate the stronger borrowers from the weaker ones. If your credit is already strong and you have manageable debt levels, you will likely see your credit score go up as a result.

 

Those with Shaky Credit May See Their Scores Drop Further


Where the new FICO system will really have an impact is on borrowers who have high debt loads. Currently, the FICO score model looks at a monthly snapshot in time of your debt picture. Now, the FICO score will broaden its look over a larger period of time. In addition, the new score will also look at the types of debt that one has in reaching its score calculation. For example, if you have a riskier type of unsecured loan like a personal loan, it will count against you more than a more conventional type of loan like a mortgage or car loan.

Further, if you are behind on your loan payments or have fallen behind in the past, you will also be more likely to see your score drop. You should count on the new FICO score hitting you harder for things that would have had less of an impact under the current system. Credit scores have gotten more consumer-friendly in recent years and the result has been an overall improvement in credit score. However, this somewhat distorts things for lenders as not everyone is as good in reality as they look on paper. Credit reports in general have become watered down and more consumers end up have their scores inflated whether artificially or otherwise.

These changes will affect borrowers who are seeking credit from those institutions that will use the new FICO system. There are several different FICO credit score methodologies and not all banks and lenders will transition to the newer system. In addition, FICO is not the only scoring system that lenders use. The credit unions themselves promote an alternate scoring methodology called VantageScore that is also used by lenders.

Those who are on the bubble for qualifying for credit under the old system will likely be the most impacted by the future FICO tests. If you believe that you are among the class that could see your scores affected for the worse and you need to obtain a loan, it is best to do so now before the impact of the changes are felt. Nonetheless, the most important thing that you can do is to manage your debt load and continue to make timely payments since there is no substitute for that.
 

Check your SCORE for free!

Related Articles

This Trend Sweeping States Makes Claiming Assets More Timely Than Ever...

A worrying trend is gaining popularity among states.  The trend is this: raising income tax leads to political suicide for politicians. This directly impacts your ability to claim y...

What to do in case of identity theft, especially when done to steal your COVID-19 Stimulus...

Theft Uses The people who steal identities or use already stolen ones have reasons for this, and all of them are a fraud of some manner. The two most common, with the uses of in...

Unclaimed Fund Searches on Steep Rise after Newsweek Piece...

A lot of people out there have heard about unclaimed funds. Though most people have not. In a nutshell, there are times where people are owed money by the government or large corporations. For instance, somet...

The Shocking Reason 36 States Just Filed a Major Lawsuit Against Google...

Over the past few decades, Google has become a major part of public life. "Just Google it" is a phrase you hear regularly, and depending on your electronics, Google might be responsible f...

The Future Onslaught of CBD Oil Class Action Lawsuits...

CBD products have sprung up in large numbers in recent years after they were legalized. CBD is now available in every form imaginable. However, when it comes to this product, legal does not necessarily mean effectiv...

Have You Been an AirBnB Host? This Class-Action Suit Could Be a Windfall!...

If you've hosted for AirBnB, you know how tenuous the process can be. You need to keep track of who is coming and going, screen potential guests, prepare housing for them, ensure payment co...