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What’s changing?
Some of the changes, like carrying a personal loan as well as credit- card debt, affects both new scores. But there are more substantial changes involving the FICO 10 T version.
For example, instead of looking at just a static month of your balances, FICO 10 T will look at the past two years or more, which will give lenders more insight into how you’re managing your creditovertime.Thatshouldmeanyourscoreswillbetterreflectthe trajectory of your behavior. (VantageScore, a lesser-known score provider that is a joint venture of the three big credit-reporting companies, has already incorporated this into its formula.)
There are other changes, too. FICO 10 T will weigh recent missed payments more heavily and penalize those who use a high percentage of their overall available credit for long periods.
That could have consequences for a person who leans on credit cards during times of distress, like a job loss. “But that person is probably a bad credit risk, unfortunately,” said Chi Chi Wu, a staff attorney at the National Consumer Law Center.
She said she worried that lower scores for such consumers could add to their troubles, making car insurance more costly or hurting their chances of finding housing — and make it harder for them to get back on their feet.
How and when will the changes affect me?
Most consumers, or 110 million people, will see modest swings, if they see any change at all, according to FICO. But about 40 million people who already have favorable scores are expected to gain about 20 points, while another 40 million with lower scores will probably see a drop.
But not every lender will use the new scores right away.
People applying for most mortgages will not be affected, at least for now. That’s because home loans guaranteed or backed by Fannie Mae and Freddie Mac, which include the vast majority of mortgages, are still required to use older versions of the FICO score.
The big credit-reporting companies — Equifax, Experian and TransUnion — will all offer the updated scores by the end of the year. Equifax will be first, sometime this summer, FICO said.
How can I improve my score?
Because the FICO 10 T calculation has a longer field of vision, it pays to get your financial life in shape as early as possible before applying for a loan.
You still want to review your credit reports, which contain the raw data that power your scores, at each of the three big reporting companies. But now you should plan further ahead and check them even earlier, because an error about a missed payment can hurt you more, and correcting the mistake can take time.
You’re entitled to check each of your credit reports, free, once a year, through an authorized website: annualcreditreport.com.
The biggest shift, however, concerns the amount of debt you carry, experts said. In the past, people trying to polish their scores right before applying for loans were told to pay off their credit cards or get the balances as low as possible a month or two before submitting an application. That won’t work as well now.
“Paying off your card a month or two before you apply? That’s not the best advice anymore,” said John Ulzheimer, a credit expert who worked at FICO for roughly seven years before leaving in 2004. “You want to get your credit card balances down multiple months in advance, or at least have them trending down for months in a row and then have balances at a low before you apply. Your runway needs to be longer now.”
Despite the tweaks, the five broad factors that drive your FICO score haven’t changed. In general order of importance, those are your payment history, the percentage of your credit used, the length of your credit history, your mix of loans and how many new accounts you’ve applied for.
That means a lot of the traditional advice still holds: Don’t make late payments, don’t apply for more credit than you need, and keep outstanding card balances to a minimum.
Tara Siegel Bernard covers personal finance. Before joining The Times in 2008, she was deputy managing editor at FiLife, a personal finance website, and an editor at CNBC. She also worked at Dow Jones and contributed regularly to The Wall Street Journal. @tarasbernard
A version of this article appears in print on Jan. 27, 2020, Section B, Page 1 of the New York edition with the headline: FICO Tweak May Change Credit Scores. Order Reprints | Today’s Paper | Subscribe
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