The new changes will focus on the credit card balances carried over from month to month.
Fair Issac Corporation, commonly known as FICO, has announced an upgrade to its credit scoring model that could result in lower scores for millions of Americans. The FICO scoring model is used by mortgage lenders, banks, and credit card companies to determine a person’s creditworthiness before issuing them a loan. The latest update to the industry scoring model will evaluate how a customer has managed carried accounts like credit cards for up to 24 months. The new FICO Score 10 Suite will be released this summer.
The new changes could negatively impact consumers who carry monthly balances on their credit accounts. In addition, the new update will also start to consider personal loans, a product that has been growing in popularity. David Shellenberger, FICO’s vice president of product management, says the changes will probably impact about 40 million people:
“Consumers that have been managing their credit well.. paying bills on time, keeping their balances in check are likely going to see a gain in score.”
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The last time FICO changed its credit scoring model was in 2014. According to data from Experian, the average credit score has risen every year since 2013. In 2019, the average was 703, falling in the good range of 670 to 739. FICO scores are also used by insurance companies, utilities, and landlords to determine creditworthiness.
So how can you improve or keep your score up? Experian says the most important thing to do is pay your bills on time. Next, try to keep the balances carried on your credit accounts low, about 30 percent of the total credit you have available. Finally, try to resist those tempting credit card offers and only apply for new credit accounts when you really need them.