Understanding the Newest FICO Score

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Credit scores can impact your life in a variety of different ways, including the rates you pay when borrowing money, your ability to rent a house or apartment, and even your security clearance review process.

One of the things that is confusing about credit scores is that there are so many of them, and now there is one more score to understand.

What Is a FICO Score?

FICO, which stands for the Fair Isaac Corporation, is one of the companies that creates credit scores. FICO has created a new set of credit scores that will be available from the three major credit reporting agencies (Experian, TransUnion and Equifax) by the end of 2020. These new models will treat the different parts of your credit score differently than previous models, so your score under the new FICO will probably be different than your score under any of the old systems.

The newest FICO scores, called the FICO 10 and the FICO 10-T, have several significant differences from most of the previous scoring models. These two scores continue to use the same five main factors of credit scoring, including payment history, amounts owed, age of credit history, credit mix and new credit accounts, but weighs payment history and debt ratios more heavily.

The FICO 10-T will include trended data that shows more specifically how you have managed your accounts over the last two years. It will show your balances, minimum required payments, and actual payment amounts. Doing so will allow lenders to see who is likely to pay their bills in full each month vs. those who may carry a balance from month-to-month. Trended data also allows borrowers to see whether you are reducing, maintaining or increasing your balances over time. Together, this trended information may indicate the level of risk that you pose to those who lend to you.

What Does FICO Mean for You?

As with almost all financial questions, the answer is "that depends." The new FICO 10 and FICO 10-T scores are not replacing any existing scores, simply offering lenders another score from which to choose. Lenders, employers, landlords or other companies may or may not choose to use these new scores when making a decision to do business with you.

While this new score will mean that it is more important to pay your bills on time and pay down your balances, it does not make any change to the basics of maintaining good credit scores and a positive credit history:

  • A good payment history with no late payments
  • Keeping your credit utilization ratio low (low balances relative to your overall credit limits)
  • Keeping old accounts open if possible to maintain a longer credit history

In general, if you currently have a good credit report and good credit scores, you may have an even higher score under the new FICO 10 and FICO 10-T models. If you currently have negative marks on your credit report and lower credit scores, your score may be even lower under these new models. So this is a great time to re-focus on the basics of keeping those scores up by making your payments on time each month, and whittling down those balances.

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