You’ll want to understand these credit score changes before you apply for a new loan.

By Lauren Phillips
January 23, 2020
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If you have a credit card, loans, or debt, you have a credit score, and you’ve likely spent a good chunk of time worrying about it or trying to save your credit score. You may know the basics of what can raise or lower your credit score, but the calculations that determine your score are a little more difficult to follow. They can (and do) change, too: The way FICO scores are calculated may soon be changing, according to a new report.

A news exclusive from The Wall Street Journal reports that the Fair Isaac Corporation—aka FICO, the creator of FICO scores—is changing how it calculates credit scores. FICO credit scores are the most widely used in the U.S. While businesses can use other credit-scoring models, such as VantageScore, the FICO score is the most recognizable, meaning changes to how that score is calculated will affect most Americans.

FICO has made updates to its credit-scoring system in the past—the last changes, in 2014, were perceived as likely to help increase credit scores—to reflect changes in borrowing behavior and performance, according to the WSJ. One of the new versions with these changes is called FICO 10 T; the most-used version is still FICO 8, which was released in 2009, according to Ted Rossman, industry analyst at CreditCards.com.

According to the WSJ, the FICO changes mean consumers with rising debt levels and those who fall behind on loan payments will be scored more harshly—in other words, their scores will fall. FICO will also flag certain customers who sign up for personal loans, a form of unsecured debt, so those who take out a personal loan and continue to rack up debt in other areas will likely experience greater drops in their credit scores than before. Those with high utilization rates—meaning you come close to reaching your credit limit often—are also likely to see lower FICO credit scores. People who fall into those categories may notice a lower credit score once the changes are implemented and may have a more difficult time getting loans with low interest rates or getting approved for loans at all.

FICO says the new changes will increase the gap in scores between people seen as good and bad credit risks, according to the WSJ. Those with already low scores may see more declines; those with already high scores may soon have a higher credit score.

If your score is already less than 600 and you repeatedly miss payments or otherwise take actions that negatively affect your credit score, your score will decline more than it has in the past. On the other hand, people who currently have high FICO scores—about 680 or higher—who continue to manage loans well may notice a higher score, even if they occasionally increase card debt at one point (during the holiday season, say) each year.

“FICO 10 T will incorporate trended data, which basically means that they’re going to try to smooth out the peaks and valleys,” Rossman says. “A temporary spending spike, such as a vacation or holiday shopping, won’t hurt your credit score as much if you generally keep your credit utilization low.”

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Whether the updated score is used is up to lenders, though. Banks, car dealerships, and other places where you might request a loan or financing can generally decide which scoring version to use, so these changes won’t necessarily affect everyone, but frequent borrowers (or borrowers who already have significant debt) should be aware that their scores may fluctuate as businesses adopt the new scoring methods. Still, knowing about these changes doesn’t replace good credit practices.

“Rather than getting too hung up on which model a particular lender is using, consumers should practice fundamental good habits such as paying their bills on time and keeping their debts low,” Rossman says.

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