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How New Changes in Credit Scoring Will Affect You

Every five years or so, credit-scoring giant FICO updates its scoring models. One latest revision — the FICO 10 T — will be out July 2020 and may be a boon or bust for your credit score.

Under the FICO 10 T, for example, a brief jump in your credit card balance will be less of a ding to your score than before. But late payments and rising debt will weigh more heavily against you.

FICO estimates that 40 million people with good scores could see a 20-point uptick under the new model, while another 40 million with weaker scores may experience a 20-point drop. FICO scores range from 300 to 850. The higher the number, the better. 

What's different? To judge creditworthiness, FICO scores consider your payment history, amount of debt, length of credit history, credit mix, and new credit accounts. The new model will continue to weigh those factors. But for the first time, the 10 T will also consider "trended data," or how consumers managed credit over the past 24+ months. Scores up to now looked at the more recent account activity.

The 10 T will consider balances, minimum payment requirements, and amounts paid, according to Experian, a major credit-reporting company. This can reveal whether you pay your balances off in full each month — a sign of creditworthiness — or carry over balances from month to month — a sign of a credit risk. Trended data can also show whether you are reducing, maintaining, or adding debt, Experian says.

How can I prepare? It may be some time before lenders and other businesses adopt the new score. This gives consumers time to improve their score beforehand. You can take these four steps:

  • Make payments on time. Late or missed payments are viewed more negatively under the new model.
  • Pay off your balance each month. Or, if you have only been paying the minimum amount, increase the amount. 
  • Keep credit utilization — the percentage of your total available credit that you use — to 30% or less.
  • Apply for new credit sparingly.
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