Credit Score Changes: FICO 10 Details [NEW FICO Score]


so one of the major
if not the most important aspect of award travel
is credit card rewards recently something happened that might
change your ability to get certain credit cards
banks and lenders often base decisions whether or not to give you a credit card
or a loan based on your credit score. fico is the
company that is responsible for the credit scoring methodology. they’ve
announced a new methodology that will take into account certain
things that are not being considered right now for credit scores
they’re calling it the fico 10 suite so let’s take a look at the changes that
are likely to change your score slightly or a lot depending on um
whether or not either of these new factors affect you
the good news is that you probably have until the end of the year
if not maybe even a year and a half to get your
house in order before the changes go into effect there are going to be two
new changes number one is what they’re calling
trended data it’s basically a 24 month look back
period to get a series of snapshots of your
credit uh usage over time well your entire
credit profile over time what they’ll be able to do now is look
back at a series of i guess we’ll call it
like credit reports so this new look back period or trended
data will give lenders a much better idea of
how you use your credit and how it fluctuates over time the
second change is the one that i think is going to hurt
a lot of people it puts a much heavier emphasis
on personal loans that’s like refinancing and it’s actually a negative
emphasis so if you’re the type of person who is
constantly refinancing your mortgage or your high interest
credit cards or whatever that is going to be part of it and it’s
going to be much more heavily scrutinized
than it is before okay so who is this going to affect
and what should you do about it first of all it’s definitely going to affect
people who carry balances and those very smart people who take advantage of
arbitrage opportunities i’ll give you an example people who take advantage
of no fee or low fee balance transfer offers a lot of people
in this space will do it because maybe they’re investing in like
um cryptocurrencies or stocks or basically the amount of money
that they’re borrowing at zero percent they’re earning a much higher percentage
on it essentially they’re leveraging their
available credit to earn interest or take a part in other
opportunities maybe like bank account bonuses these people are probably not
going to fare well under the new model because it’s going to look at your
personal loans in comparison to your credit card debt
right so if you take out a personal loan and
that goes up but your credit card debt goes down
it’s not necessarily going to be the same situation where now they just look
at the amount of credit card debt people who
regularly carry a balance are probably also not going to fare well
under this new credit scoring methodology because
they’re able to see what your balances are over the last 24
months and a person who does not pay off their balance in full every month
is a much higher credit risk than somebody who
does a few ways that you might want to combat this might be
to stop using balance transfer offers unless
you’re maybe not going to be applying for new credit right now
and you might want to occasionally prepay a bill so let’s say
you have a huge purchase and you’re planning on paying it off at the end of
the month let’s say it’s like 5 000 and your
available credit is 100 right you don’t want them to look back
at that one time period and say well this person
has times where they fluctuate in their credit utilization ratio
right so maybe if you make a big purchase maybe just like pre-pay it if
you have the money because i think that’s probably gonna be
an easy way for people to keep things
steady when it comes to their credit scores
number two obviously don’t make late payments they stay on your account
forever and they’re terrible if you forget which happened to me more
times than i’m willing to say if it’s a lender that you’ve had like a
long relationship with they’re much more likely to work with
you to remove the late payment from your history but again if they’re
looking at trended data that won’t disappear because it showed
up on one of the reports right it’s really important to note that the
credit score is going to be the fico 10 suite is
going to be available to lenders by the end of the year most
likely but it’s completely up to them whether
they want to adopt the new framework or stick with the old one the
scores are still from 300 to 850 and again it’s completely up to them
they can consider it or not so i guess only time will tell whether
or not this will actually affect you but if you’re somebody who maybe does
have like a big student loan or who has temporary cash flow issues
from time to time you might want to start getting your
cards now i mean i hate to tell people to like sign up for a
bunch of cards and do like an adorama but it’s something to consider because
you know maybe your your score is tank in a year or so
and then you know it’s difficult for you to continue doing what you’re doing
and still earning new credits so something to think about and definitely
keep an eye on the way that things are changing
because what one bank does is always well
is usually a good predictor of what others will do
you know like when chase started 524 other banks started to restrict their
application approvals as well so it’s just like common sense you’ll be
okay as long as you are credit worthy and you pay
attention i would love to know other ways that you
guys feel like you might be affected by the new scoring
and what your predictions are as to whether
the banks will actually adopt any of it because
fun fact uh fico 9 is barely ever used but fico 8 is the one
we use also if you’re using experian boost
i think it is that’s basically like monthly bills that are not necessarily
reflected on your credit report can be reported to experian
and then i hope i said that right i said it two different ways so
one of them has to be right can be reported to experian
and experian considers that when uh reflecting your score to banks so
you will be able to keep raising your score that way it won’t affect that
credit card companies will definitely have a more reliable
predictor of your overall credit worthiness as a customer
based on the trending data one thing that i don’t know that i
am definitely going to look into is whether
that counts for student loans because currently
your student loan balance is not what is reflected on your credit report as an
outstanding debt instead it’s the amount that you
currently owe so i know somebody who has like seven
hundred thousand dollars in um student loan debt and because
they’re in an income based repayment program
the amount that is outstanding as a loan is only what is due each month i don’t
know how the new changes are going to affect
student loan borrowers so that’s definitely a big thing to keep an eye
out for and i will let you guys know as soon as i find out
and then while this is not an official change it seems that late payments are
going to be much more negatively emphasized right so
if you have a late payment or whatever in the last couple of years
that’s going to account for a bigger amount than it does now
the new fico suite will still rely on the
standard factors which are payment history
average age of credit that is basically how long
each of your accounts has been open and it’s an average your
credit utilization ratio that’s the proportion
of outstanding credit card debt to what you have available
so if you have like ten cards and they all have a ten thousand dollar credit
limit you have a hundred thousand in available credit if you’re only using
two thousand dollars on one card your uh credit utilization ratio is two percent
and that’s sort of like one of those counter intuitive things that people are
always confused by so like if you get more cards and get
more credit that actually is helpful for your credit score because
you’re using less of your cushion cushion being the difference between
your outstanding debt and your available
credit then you have credit mix and new credit accounts that’s basically
how many you have open and in what period of time as we all know
524 is based on that so we’re very familiar
so just to recap the new model will treat debt and late payments much more
severely and will also include a much
longer much more complete picture that goes back 24 months called trending
data

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