New Credit Score Model Set To Be Released This Summer
Over the past few years, we’ve seen multiple new credit scoring models designed to help consumers get access to credit. Credit scores, such as the VantageScore, claim to score up to 30 million more people than FICO and are used in consumer lending and consumer credit monitoring. These efforts have helped improve credit scores and accessibility to credit lines for many consumers.
Well, that could all change this summer. FICO has released a new credit score suite, FICO 10 and FICO 10T, built to enhance current credit scoring models and use predictive technology for better risk analysis. Here is a description from FICO themselves:
“FICO® Score 10 delivers increased predictive power, while preserving the trusted and proven FICO Score minimum scoring criteria. Plus, FICO Score 10's backward compatibility to previous FICO Score versions ensures continuity, ease of use and stability for lenders and investors. Lenders can more easily transition to FICO Score 10 since it includes standard FICO reason codes, a similar odds-to-score relationship as prior versions and consistent score ranges.”
There’s very little information available as to when a change could be made in the mortgage industry. However, because FICO 10 is compatible with previous FICO score versions, it has a higher likelihood of getting implemented than previous credit scoring models launched in the past. John Ulzheimer lists the potential downside for consumers with the FICO 10 score in his blog post for Experian:
LATE PAYMENTS WILL BE MORE DAMAGING
“With the FICO® Score 10 Suite, the impact of late payments is more pronounced than with prior FICO® Score versions. This means consumers who miss payments are likely to experience a more severe drop in their credit scores under FICO® 10 than under previous FICO® scoring models.”
CREDIT CARD UTILIZATION WILL PLAY A BIGGER ROLE
“While credit utilization has long been a component of credit scoring models, its impact will be more pronounced in FICO® 10.”
PERSONAL LOANS MAY NEGATIVELY IMPACT YOUR CREDIT SCORE
“Early reports about FICO® 10 revealed that personal loans would be treated differently than they were in prior FICO® versions, and that consumers might be penalized simply for having personal loans on their credit reports. This is a notable difference in how FICO® Scores have traditionally treated personal loan accounts.”
FICO 10 and FICO 10 T are going to shake up the credit scoring market with the use of Trended Credit Data and new score implications for the rise in personal loans and credit card debt. This could mean that consumers with low scores could see their credit scores go even lower.
If you are struggling with low credit scores or derogatory accounts on your credit report, now is the time to take action. Schedule a free evaluation with our team of consultants to learn more about how you can build healthy credit and reach your credit goals.