The formula behind your credit score is changing. But the key ways to keep your score up haven't.
Fair Isaac Corporation, the creator of FICO scores, the credit scoring algorithm used by most lenders, announced Thursday that it will introduce a new scoring model this summer, called the FICO Score 10 Suite. One version, FICO Score 10 T, will start incorporating data about consumers' historical debt levels into their score, which experts say could hurt borrowers who have taken on higher balances or fallen behind on payments.
FICO expects about 110 million consumers will see a change to their score under the new credit score models. Most of those could see their score improve or drop by less than 20 points.
"What I think consumers might not understand about the new scoring method is that it is using trended data," says Gerri Detweiler, education director for Nav, which helps business owners manage their credit and get access to financing. "Where before, your credit score was a snapshot in time, this FICO model is looking at up to 24 months of your credit history to see how it's changed."
With current scoring models, many consumers have relied on personal loans as a way to refinance high balance credit cards and boost their score, but Detweiler says this may not be as beneficial with the new model: "The scoring model may be able to pick up on the fact that you're basically moving around debt, as opposed to paying off credit cards."
If you're making on-time payments, keeping your balances low, and managing your credit responsibly, the new algorithm could actually benefit you. The Wall Street Journal estimated that borrowers who already have FICO scores of about 680 or higher could see their score improve under the new model. For perspective, the average FICO score is 706.
Incorporating that trended or historical data means "they're going to try to smooth out the peaks and valleys" of your score, Ted Rossman, CreditCards.com's industry analyst, explained in a statement. "A temporary spending spike such as a vacation or holiday shopping won't hurt your credit score as much if you generally keep your credit utilization low."
Lenders are slow to adopt new scoring formulas. The most-used formula is still FICO 8, which was released over a decade ago, according to Rossman.
"Rather than getting too hung up on which model a particular lender is using, consumers should practice fundamental good habits such as paying their bills on time and keeping their debts low," he says.
Video by Ian Wolsten
Here are a few strategies you can use to boost and maintain a good score, according to experts:
Detweiler suggests thinking of the formula change as just one more reason "to make sure that you have systems in place to maintain good credit." She explains: "Things like that are important, but may become even more important as we move in this new direction with the scoring model."
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