CREDIT TIPS

NEW CHANGES 2020 FICO® SCORE 10 AND FICO® 10 T

January 23rd FICO® had announced a major credit scoring model change that could affect your ability to purchase a new home. So, what has changed and what can you do to ensure you have the best score possible?

FICO® has built a new credit scoring model that will be available from all three credit bureaus (Experian, TransUnion, and Equifax) to all lenders by the end of 2020. 

Any late payments you have will be treated more severely. It will also consider your historical information about your credit card balances and payment amounts. Most likely once in place, these changes take place your credit score will change.

FICO® 10 T (the T stands for "trend") will consider trended data for the first time. Currently, the FICO score model that determines your credit score relies on your payment history, amounts owed, age of credit history, credit mix, and new lines of credit accounts established.

The FICO® 10 T variant expands this further. The change is made to give lenders a more precise assessment of your credit risk. Trended data, being used for the first time, is also known as time-series data. This is information on your credit reports that shows how you have managed your credit accounts over the last 24 months. This creates a form of an individual snapshot of how responsibly you manage your credit.

Regarding credit card accounts appearing on your credit reports, the trended data includes your balances, minimum payment requirements, and the amounts you paid on your most recent credit card statements going back 24 months. This allows the credit scoring model to differentiate consumers who pay their credit card debt in full each month (known as "transactors") from those who carry over, or "revolve," a balance from month to month. Consumers who pay their credit cards in full each month are generally considered lower credit risks than those who revolve a balance from month to month. Trended data also allows a credit scoring model to determine whether you are reducing, maintaining or increasing your balances over time. These factors are considered by the newest scoring models because they help predict credit risk, which enables both consumers and lenders to make more responsible credit decisions. "FICO® invested in the development of both FICO® 10 and 10 T rather than a single score in order to provide lenders with unparalleled flexibility to select which approach works best for them," says Ethan Dornhelm, vice president of scores and predictive analytics at FICO®. What does this mean to you? To make your trended data work for you and not against you, it will be more important than ever to pay your bills on time and pay down or, ideally, pay off your credit card balances well in advance of future credit applications. These trended payments will appear on your credit reports, and FICO® 10 T and VantageScore 4.0 will likely reward you for reducing your balances.

HERE IS A LIST OF QUICK CREDIT TIPS AND TRICKS

  • Credit scores will still range from 300 to 850 points. The higher your credit score, the better. 
  • Average credit scores range between 660 and 720. A score above 680 will increase your chances of obtaining financing. There are programs available that will accept a credit score as low as 620, such as down payment assistance and grant programs.
  • Your credit score can also affect your interest rate. The higher your score, the more likely you are to get a lower interest rate. 
  • Avoid multiple credit pulls. Having your credit pulled multiple times may result in a decreased credit score.
  • Don't close out your credit card accounts because you do not use them. Put them away. The longer you have established lines of credit available to you the better.
  • Credit utilization. It is not always necessary to pay your balances down to $0. Revolving credit can be good. Keep your percentage to 20-30%. For example, if you have a credit card with a $1,000 line of credit and you have charged $500 then you would have a 50% utilization which could lower your credit score.
  • Personal loans and debt consolidation may lower your credit scores under this new model.
  • If you have poor FICO® scores now, your scores most likely will go down under this new model. Our advice is to give us a call so we can quickly create a strategy to get your score up enough to be able to purchase a home.

When a FICO® Score is generated, it’s based on five key factors in your credit report.

  • Payment history (35% of your scores) Whether you've paid past credit accounts on time 
  • Amounts owed (30% of your scores) The amount of credit and loans you are using 
  • Length of credit history (15% of your scores) How long you've had credit 
  • New credit (10% of your scores) Frequency of credit inquires and new account openings 
  • Credit mix (10% of your scores) The mix of your credit, retail accounts, installment loans, finance company accounts and mortgage loans

FICO information above according to FICO's model. Learn more at www.fico.com

MANAGING YOUR CREDIT AND FICO® SCORES RESPONSIBLY

PAY YOUR BILLS ON TIME

Delinquent payments and collections can have a major negative impact on your FICO® Scores. If you’re behind on payments, get current, and stay current.

AVOID HAVING PAYMENTS GO TO COLLECTIONS

Paying off a collection account will not remove it from your credit report. It will stay on your report for seven years.

KEEP BALANCES LOW ON CREDIT CARDS

It’s okay to use your credit cards, just be careful about using a large percentage of your available credit — high utilization rates can have a major impact on your FICO® Scores.

DON'T CLOSE UNUSED CREDIT CARDS

Your FICO® Scores consider the age of your accounts – the longer your credit history, the better.

HAVE CREDIT BUT MANAGE IT RESPONSIBLY

Ultimately, having a mixture of credit is a good thing — as long as you make your payments regularly and on time. Someone with no credit cards tends to be a higher risk than someone who has managed credit cards responsibly.

NOT SURE YOUR CREDIT IS UP TO PAR?

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