Consumers who fall into debt and look to catch up by taking out personal loans will most likely see their credit scores drop under the new credit scoring model FICO is putting into place.
The good news is that some credit scores will rise as lenders will be able to reduce the number of credit defaults, according to a press release from Fair Isaac Corporation, the company whose credit score system most U.S. lenders use.
FICO Changes Credit Score Model for 2020
The changes are part of the FICO Score 10 Suite credit rating system, which the company says uses “trended data” from credit reporting agencies.
Trended data will allow lenders to take into account the past 24 months or more of a borrower’s credit history.
The changes will affect millions of consumers in different ways. If you’re wondering how they might affect you personally, here’s what you need to know.
Whose Credit Scores Will Likely Increase?
If you’re the type of consumer who swipes your credit card heavily during a specific time of the month or year — but pays it off quickly — you’re likely to see less of a credit score drop, according to the Wall Street Journal.
As always, paying bills on time and keeping low balances will only help raise your credit score.
Whose Credit Scores Will Likely Go Down?
The changes will largely hurt people who make late payments or have missed a payment altogether in recently.
Additionally, people who carry running credit card balances month to month and try to catch up by taking out personal loans — adding to their debt, are likely to be negatively impacted — the Journal reports.
Clark’s Take on FICO’s New Credit Score Model
“If you don’t actively manage your credit and stay conscious of your ratios, your score could decline even if you’re paying on time every month, so it’s very important to manage, especially with the newest FICO scoring model that’s just being rolled out.”Array