Your credit score can have a dramatic impact on your life. It determines your ability to secure financing for things like automobiles and homes, as well whether you qualify for credit cards and other lines of credit. If you monitor your credit score, you may want to pay extra attention in the next few months as Fair Isaac Corporation rolls out some tweaks to the FICO score calculation with FICO 10.
What’s Changing?
The new model will look at consumers’ account history over the previous 24 months which is longer than had been done previously.
Who’s Affected?
Those with high credit utilization and delinquencies during that time period will be most dramatically affected. Because the period of time included in the calculation is now extended, delinquencies will affect a person’s credit score for a longer period of time.
How Much Will Scores Change?
The changes in the calculation is estimated to affect 110 million consumers, although most will see an upward or downward change of 20 points or less. The changes are expected to widen the gap between those who have good credit, and those with bad credit.
How Can I Get A Good Credit Score?
The good news is, the path to having a good credit score remains the same:
- Pay On Time: Payment history is the biggest factor in the credit score calculation. Pay on time and avoid delinquencies.
- Limit New Accounts: Every time you apply for a new credit account your score is reduced by about 5 points for the hard credit pull. These points return after a few months, but applying for and/or opening several new accounts in a short period of time can significantly affect your credit score.
- Keep Utilization Low: The typical recommendation is to keep the utilization of your credit accounts to below 30% to maintain an excellent credit score.
- Pay Off Accounts: If you can pay some accounts in full, not only does that lower your overall credit utilization, but also reduced the likelihood you may forget to make a payment and get a late payment mark on your credit report.
The FICO calculation is getting a bit of a tweak, which is common from time to time. The good news is, if you have good credit you’ll continue to have good credit. If you don’t, the path to improve it is still exactly the same.
How about you, EOD Nation, do you monitor your credit score?
