The FICO Score is Changing in 2020-Here's What You Need to Know

As if 2020 hasn’t brought about enough change and uncertainty, there's another shake-up coming your way—and it involves your FICO^® Score.*
 
We know, we know. The last thing you need, right? Don't worry, we've got you covered. Here's a quick rundown about the new FICO 10^® and FICO 10T^® Scores.
 
What is a FICO Score and how can I find mine?
Your FICO Score is a key component of your financial well-being. If you ever want to buy a home, rent an apartment or go back to school, it helps lenders determine your reliability and the interest rate you’ll pay for that loan. You can usually find your FICO Score for free on your mobile banking apps, on your online banking site or possibly on your credit card payment apps. In addition, you can purchase your credit score from any of the three major credit bureaus: Equifax, Experian and TransUnion.
 
The most common credit score range is 300 to 850, with 850 being considered exceptional.
 
Since 2014, your FICO Score has been calculated using pieces of data in your credit report that are grouped into five categories: payment history (35% of your score), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).
 
What’s changing?
Fair Isaac Corporation (FICO) is changing how it determines your FICO Score. This change will result in higher scores for about 40 million people and lower scores for another 40 million, essentially widening the gap between those with good credit and those with poor credit. Experts say those people can expect a change of about 20 points in either direction.
 
The formula to determine your new FICO 10 score won't change much from the original calculation, but the combination of personal loans and credit card debt will cause a score to drop more dramatically than in previous years. Basically, if you plan to apply for a debt consolidation offer—it’s wise to keep your credit card balances low as you pay back the loan.
 
The FICO 10T score, on the other hand, will look further back into your credit history than ever before. Lenders who check this score will be able to see two years or more of credit history.
 
Remember that shopping spree you went on in 2018? FICO 10T remembers.
 
This score will also weigh missed payments heavier than previous FICO scores.
 
The good news? Those who currently have good scores will likely see their scores improve. Unfortunately, those with struggling scores are likely to see their scores drop.
 
If you cringed when you read that last sentence, you're not alone. Try not to panic! Remember that there are literally another 39,999,999 people who may be in a similar financial boat.
 
When will my FICO Score change?
Since many lenders will need to make upgrades to their credit scoring systems, it may take a while before you see a change in your FICO Score—if at all. If you're applying for a loan in the near future, depending on which lender you choose and where they are in the upgrade process, your old credit score may still be the one used to determine your rates.
 
What can I do in the meantime?
It's always a good idea to do what you can to improve your credit. While we know that these changes may not happen overnight, we want you to be ready when they do.
 
If you’re worried that your FICO Score will go down, implementing a few, small changes now can easily make up for that 20-point drop. To help you get started, here are a few ways to increase your credit score—and keep it there:
 

• Pay off your credit card balances. Or at least keep them low. Living within your means is one of the simplest ways to raise or maintain your credit score. Ideally, you'd pay off all your balances every month. If that's not a possibility, make frequent small payments to keep balances low and reduce costly interest charges.

• Make your payments on time. “A surefire way to ensure your FICO Score stays consistently high is to make frequent payments on your credit card. Make purposeful purchases with your credit card, such as gas and groceries, and pay them back with the money you’ve already budgeted. Consistency is key,” says Jade Beckman, vice president of consumer loans at Mountain America Credit Union. Paying your bills on time has always been important, but it's even more crucial under the new scoring system. The Wall Street Journal, who first reported the FICO changes, says those who fall behind on their loan payments are most likely to see their score decrease.

• Fix errors before you apply for a loan. Under this new scoring system, a missed payment error can hurt you more, The New York Times reports, and correcting the mistake can take time. Check your credit score often and keep an eye out for any sudden or dramatic changes. You're also entitled to one free credit check with all three major bureaus once a year. Take advantage of this and quickly report anything that looks suspicious, like a loan you never signed for or an inaccurate payment history.

• Clearly consider what kinds of loans you apply for. Loans are a part of today's financial world, and they're generally not harmful to your credit score as long as you remain current on payments. When it comes to personal loans, you need to stay particularly vigilant. If you have a history of high rates of utilization, work toward paying off what you owe without adding more debt.

 

We know this is a lot of information and that you already have a ton on your plate. If you need help getting your finances in order, reach out to your preferred financial institution today. They have a team of experts ready to help you manage your money and guide you on the right path forward.

 
 
*FICO^® is a registered trademark of Fair Isaac Corporation in the United States and other countries. Mountain America Credit Union and Fair Isaac are not credit repair organizations as defined under federal or state law, including the Credit Repair Organizations Act. Mountain America Credit Union and Fair Isaac do not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history or credit rating. FICO^® Score available to primary members only.