fico credit score

How Recent FICO Changes Affect Your Credit Score

On January 23rd, the Fair Isaac Corporation announced the latest release of their FICO score suite, which will be available for lenders to start using sometime this summer.

What is a FICO score?

The Fair Isaac Corporation (FICO) is the oldest and best-known credit reporting agency. Your FICO score is intended to help financial institutions and other lenders estimate your likelihood to pay them back any borrowed money. It impacts the interest rates and length of loan terms at which you may be approved, and it can even have an impact on the approval and terms of various insurance and utility companies.

Why is FICO changing?

FICO comes out with an updated scoring system every few years. The goal of the latest update in FICO scoring is aimed to better assist lenders in predicting customer's trends in order to make decisions on lending easier. According to the company, the new scoring system will outperform all its predecessors. FICO states that lenders will be able to reduce their defaulted portfolios by up to 17 percent under the new suite.

How is FICO changing?

The new suite of scores is called the FICO 10 score suite. It gives lenders a more precise assessment of your credit risk by considering trended data. This trended data is collected by reviewing how you have managed accounts on your credit report within the last 2 years, differentiating from the older FICO suites, which only gave a one-month trending snapshot.

Your monthly payments in credit cards are weighed higher under the changes. Lenders can now see how much you pay on your credit card balances every month. Consumers who pay off their balances in entirety every month will be considered low-risk customers. The trended data will also show lenders if your overall credit card balances are lessening or rising over time, which can add to your credit risk.

Late payments and credit utilization will also have a higher impact on your score. Your ratio is your credit card balances compared to your total credit available. For example, if you have 30,000 in available credit and 10,000 in credit card debt, your ratio would be 30%. The lower your percentage, the better your score.

Personal loans have a better chance of decreasing your score under the 10 suite. For example, if you have taken out personal loans to pay off credit card debt within the two years and in turn have racked up more credit card debt, your score is likely to decrease even more.

Effects on your current score

Most likely, if you currently have a good credit score (670 and up), you're more likely to have an even better score under the 10 suite. Conversely, if you have a low score, that number is more likely to decrease even more. The good news for people with low scores: FICO score 8 is still the most widely used version amongst lenders, thus the changes are not likely to have a considerable impact at this time. The traditional aspects that go into affecting your credit score aren't changing. FICO score ranges will remain as low as 300 and as high as 850.

The bottom line: What you can do

Best practices to attain a good credit score aren't changing. However, paying closer attention to your credit utilization ratio, paying monthly credit card balances in full, and making sure you aren't missing payments will greatly pay off. To keep your credit utilization ratio low, avoid closing out unused credit cards. Also, since the FICO 10 suite looks back further into your credit history, planning far ahead for lending needs is advised more than ever.

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How Much Does Bad Credit Really Affect Your Life?

You might know your credit score isn't ideal, but do you really know how high it needs to be, or how having less than a 600 score affects your life? Credit scores are a lot more than three little numbers on a screen. They have real-world consequences, and unfortunately, many people don't know how to raise their score after it dips. Luckily, Lexington Law's lawyers do.

Lexington Law's team of legal experts will identify the negative line items on your credit report (this could be a late bill, missed interest payment, or more) that are bringing your score down. Then they'll put the law on your side, working to erase those negative line items by negotiating directly with your creditors. Once the line items are erased, your score goes up!

So, you've got less than a 600 or 650 credit score. What does that really mean for your day to day life? Here are the long term effects bad credit you may not have known about.

It Can Make Owning Or Renting A Home Impossible

Landlords can and do run your credit report, and often refuse to rent to people with scores below 650. If you're looking into a mortgage, you might get denied because of bad credit, and if you do get approved you could end up paying thousands more every year from jacked up rates.

It Will Cost You $ By Increasing Your Rates

It's not uncommon for interest rates on credit cards to reach as high as 22% and auto loans to reach 15%. That means you're going to be paying more, sometimes thousands more a year, on your car and credit card interest just because of your credit score.

It Could Keep You From Getting Hired For That Dream Job

Few people know that there is a federal law in place that allows employers to research your credit history and score. That means your loans, credit card debt, credit score, negative line items on your credit report, and more are visible to your employer! A survey from the Society for Human Resources Management found that nearly half of all employers conduct credit checks.

You Can Get Denied Future Credit Cards

Everyone needs a credit card for those emergencies: an unexpected illness if you have to relocate to a hotel for a few days after a natural disaster. But if you have bad credit, you won't be eligible for a credit card, and that can put you and your family in danger.

Lexington Law's lawyers have helped thousands of people raise their credit score and improve their lives. They're passionate about finding a plan that will work with your unique credit situation, and even have a dashboard on their website where you can easily access information about your credit, and see how it changes during the months Lexington Law is working for you. Start by following this link or call 833-335-5639—it could be the first step to making a real change in your life.

Call anytime between 7am and 11:59pm EST to get your free credit report and score!

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