FICO changes

What FICO Score Changes Mean to You

By Jim Caniglia The changes do not mean an instant drop in your credit score Much has been made recently about upcoming changes to the FICO models or “scores” that are thought of as capturing your credit usage more like a short movie than a snapshot in time, which gives lenders a more complete 4 Not all lenders use FICO at all scheduled to go into effect this picture of your credit history. summer and how they will impact This can be advantageous for some. For There are other alternatives to FICO consumers. Many of the headlines example, say you use the majority of credit scores, one such score called VantageSmake it seem as though nearly everyone’s available to you each month, but pay it all core, is becoming a more popular meascore will go down and it will become more off the day it’s due on the 5th of the followsurement tool for lenders when evaluating difficult to secure credit. This isn’t necesing month. If you applied for credit on the applicants’ credit. VantageScore is a model sarily the case, however. Here are the top 30th of any given month, an older version that was developed by the three primary four things you need to know about FICO of FICO might flag up that you use most of credit bureaus (Trans Union, Experian, and credit scoring in general. your credit without noting that you pay it and Equifax). VantageScore 4.0, which is off in full every cycle, as it only pulls data the most current score on the market was 1 What goes into your FICO score from the day you submit your application. FICO 10-T, on the other hand, looks back to the past 24 months of activity, and will released in 2019, and already contained the trended data technology. There are some notable differences besee that you responsibly pay off your debts tween the two, however. VantageScore only

Today, your FICO score is based on seveach month – which will be advantageous requires as little as one month of credit hiseral elements: as your lender considers your application. tory to develop a score, compared to FICO, n 35 percent comes from how often On the flip side, if you’ve continuously which requires at least six months of credit you make on-time payments and how freconsolidated your debts into a personal history with recent activity. In addition, Vanquently you’re late. loan through fintechs or a similar service, tageScore considers data such as rent, utility n 30 percent comes from credit utiliFICO 10-T will see this too, and this could and phone billing information, if that inforzation, which is the percentage of credit make obtaining credit somewhat more mation is already contained in your credit you’re using that’s available to you. In genchallenging. FICO 10-T also examines report to help develop a credit profile for eral, the FICO formula prefers to not see some factors that help it predict upcomapplicants, while FICO currently does not. you using all of your available credit. ing changes in financial situation, such as For these reasons, VantageScore can be more n 15 percent comes from the age of your when student loan payments might start advantageous for those new to credit such as credit history – i.e. how long your credit becoming due or increase. college students or recent immigrants. accounts have been open. Lenders, especially larger banks and credn 10 percent comes from your credit mix. This refers to the types of credit you have, whether it’s bank-issued cards, auto 3 Not all lenders use the same FICO it card issuers, are increasingly using the VantageScore to evaluate consumer credit. According to a recent study by VantageSloans, mortgages, etc. The FICO formula scoring release core, use of their credit score increased by generally likes to see a mix of credit and 20 percent between 2017 and 2018, and by not one specific type. Just because there is a new FICO scoring 300 percent between 2013 and 2018. n 10 percent comes from how much new system doesn’t mean all lenders will adopt The bottom line – there are a variety of credit you have or have inquired about. If it right away – or at all. The most current scores lenders use to evaluate consumers’ you suddenly have begun opening a number FICO system release is version nine, and credit profiles. The newest FICO scoring of new credit lines, this could be a red flag. while some lenders operate using that sysrelease is just the most recent development tem, others still use older versions. There in a somewhat crowded space that is likely 2 The new version is more like a movie are no mandatory guidelines as to which version lenders must use, so don’t automatically assume the lenders you’re seeking to continue evolving. If you have questions about how your credit is being evaluated and what steps you can take to potentially loans from will be using the most up-toimprove it, talk with your banker.

The newest FICO release, called 10-T date version. Jim Caniglia, is the senior vice president/ (the T stands for trended data), can be consumer credit risk director at UMB Bank