How FICO Changed Its Credit Score System

a person holding up a phone that shows their credit score

The Fair Isaac Corporation created the FICO score to help lenders assess credit risk and determine whether to extend credit. This year, FICO introduced a new way to calculate credit scores that could potentially hurt consumers who fall behind in their payments. Our team at Jacovetti Law, P.C. has put together all the information you need to know about the FICO score changes and how it may affect you.

What Are the FICO Credit Score Changes?

Every few years, FICO produces a new version of its credit score; however, lenders can choose to use an older version if they wish. FICO 8, released in 2009, is the most commonly used model. According to the Wall Street Journal, the FICO score released this year, FICO Score 10 and 10 T, will weigh personal loans more heavily. The goal is to penalize borrowers who consolidate debt with personal loans.

FICO Score 10 T will use a “trended date” of the last 24 months for every borrower. This will provide lenders with the overall data of a borrower’s credit behavior, rather than a monthly snapshot. This could benefit people who have been paying off their debts, but it could also hurt those who have acquired more debt over the years.

Based on the impact of past FICO Score changes, it could shift the average score by 20 to 25 points. However, it’s not expected for this new credit score to be adopted by lenders until next year.

How These Changes Can Hurt Your Credit Score

Unfortunately, the FICO Score changes can hurt your credit score. For example, late payments can create a bigger drop in your credit score than ever before. Your credit score can also decline if you have a history of not paying off your credit debt in full every month. Another big factor is that personal loans might also damage your credit score, especially if you use them to consolidate credit card debt. FICO considers personal loans a higher risk than car or house loans because they are unsecured and typically don’t require collateral.

Tips to Help Prevent a Credit Score Decrease

Now that FICO 10 closely tracks your credit behavior, it’s vital to keep a close eye on your FICO score. Below are a few tips to help your credit score after the FICO Score changes:

  • Check Your Credit Score Every 6 months: It’s important to keep track of your credit score changes. Be sure to check your credit report at least every four to six months to track changes. You are entitled by law to a free credit report once a year from three credit bureaus.
  • Try to Pay Bills on Time: It’s extremely helpful to pay your bills on time because nearly 35 percent of the FICO score is based on your payment history. If you can’t pay your bills on time, paying the minimum amount will help.
  • Avoid Frequent Credit Card Usage: Your credit score is also heavily determined by how frequently you use your credit cards and how much credit limit is available. Maxing out your cards doesn’t help your credit score.
  • Avoid Applying to New Credit Cards: Frequently applying for new credit will lower your average age account and can create a small dent on your FICO score.

Get Help From a New York Credit Card Debt Attorney

Credit score changes can be intimidating, especially if you’re facing debt. However, you don’t have to struggle with credit card debt alone. Attorney Robert Jacovetti is an experienced credit card debt relief lawyer who has helped people across New York obtain financial freedom. Attorney Jacovetti can provide you with professional advice to tackle debt and help figure out the right solution for you and your family.

If you’re facing debt, give our firm a call today at (516) 217-4488 to get started!

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