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If you've been carrying credit card debt, you could see a drop in your credit score soon.
Fair Isaac Corp., the creator of the FICO score, announced today, Jan. 23, the new FICO 10 model, which is expected to cause scores to fluctuate roughly 20 points. This change comes on the heels of the average FICO score hitting a record high of 703 earlier this month.
The new credit scoring model will be calculated to incorporate consumers' account balances for the previous 24-plus months, which is bad news for anyone carrying balances month to month. These changes are expected to widen the gap between people with good credit (scores 670 to 739) and those with bad credit (scores below 580).
"Those consumers with recent delinquency or high utilization are likely going to see a downward shift, and depending on the severity and recency of the delinquency it could be significant," Dave Shellenberger, FICO VP of product management, says.
FICO estimates that roughly 110 million consumers will see a change to their credit score once the new model is in effect later this summer. Approximately 40 million consumers will see a shift upward over 20 points and another 40 million will see a shift downward.
"This isn't consumer unfriendly," John Ulzheimer, an expert on credit scores and credit scoring, tells Select. "People with good credit are going to score higher with newer models. People who have elevated risk are going to score lower. That's always what you see in a newly developed model when you compare score distributions to older models."
A good credit score is key to qualifying for competitive rewards cards, like the American Express® Gold Card, that make it worthwhile to have a score above 670. Terms Apply.
Select offers some tips on how increase your credit score and achieve good credit in anticipation of the new FICO 10 scoring model.
How to improve your credit score
Make on-time payments
Payment history is the most important factor of your credit score, so it's key to always pay on time. Set up autopay or reminders to ensure timely payments.
Pay your bill in full
While you should always make at least your minimum payment, we recommend paying your bill in full every month to reduce your utilization rate (your total credit card balance divided by your total available credit). In general, the lower your utilization, the better your credit score.
Don't open too many accounts at once
Each time you apply for credit, whether it's a credit card or loan, and regardless if you're denied or approved, an inquiry appears on your credit report. This temporarily dings your credit score about five points, though it'll bounce back within a few months. Try to limit applications as needed and shop around with prequalification tools that don't hurt your credit score.
Complete a balance transfer
If you're in debt, consider a balance transfer credit card, such as the Citi Simplicity® Card, which offers 0% intro APR for 21 months on balance transfers from date of first transfer and 0% intro APR for 12 months on purchases from date of account opening (after, 19.24% - 29.99% variable APR; see rates and fees). Balance transfers must be completed within four months of account opening.There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).
If you put together a clear payment plan before you make the transfer, you can pay off the balance quicker and cheaper than leaving the debt on a high-interest credit card. Your payments will go fully toward your debt versus debt plus interest.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
FAQs
What's Changing? Your VantageScore will be used in addition to your FICO score. Mortgage lenders will now use VantageScore 4.0 and the newer FICO Score 10T (instead of Classic FICO) when qualifying borrowers for a home loan.
What does it mean when your FICO score has changed? ›
New credit.
Changes to these and other factors on your credit report are what result in adjustments to your credit scores. That data could also include balance changes, the opening of new accounts, payments on existing accounts or closed accounts falling off your credit report after a period of time.
What is the new FICO scoring system? ›
The FICO Score 10 Suite is the newest FICO credit scoring model, consisting of two scores: FICO 10 and FICO 10T. The FICO 10T credit score includes trended data, which looks at individual consumers' payment and debt history for the previous 24-plus months to help calculate their credit scores.
Does getting a new credit card lower FICO score? ›
It's also worth keeping in mind that opening a new credit card could result in a decrease in your credit scores. That's because applying for the card will result in a hard inquiry. And opening the account will lower the average age of your credit accounts—a factor in calculating credit scores.
What is the new credit law in 2024? ›
Consumer Financial Protection Bureau Releases Final Rule on Credit Card Late Fees, with Overdraft Fees on Deck. On March 5, 2024, the Consumer Financial Protection Bureau (Bureau) announced the final rule governing late fees for consumer credit card payments, likely cutting the average fee from $32 to just $8.
Which score is closest to FICO? ›
VantageScore. The VantageScore model—specifically Version 3.0 which is the most widely used—considers similar factors to the FICO score model.
Why did my credit score go from 524 to 0? ›
Credit scores can drop due to a variety of reasons, including late or missed payments, changes to your credit utilization rate, a change in your credit mix, closing older accounts (which may shorten your length of credit history overall), or applying for new credit accounts.
How to ask for late payment forgiveness? ›
A goodwill letter is a formal letter sent to a creditor, lender or collection agency to request forgiveness for a late payment or other negative item on your credit report. In the letter, you typically: Explain the circ*mstances that led to the late payment or issue.
What is a good FICO score? ›
What is the average credit score for an American? ›
Credit scores help lenders decide whether to grant you credit. The average credit score in the United States is 705, based on VantageScore® data from March 2024.
And when it comes to credit, 850 is the highest the FICO® Score☉ scale goes. For more and more U.S. consumers, practice is making perfect. According to recent Experian data, 1.54% of consumers have a "perfect" FICO® Score of 850. That's up from 1.31% two years earlier.
What is the lowest credit score to buy a house? ›
Generally speaking, you'll likely need a score of at least 620 — what's classified as a “fair” rating — to qualify with most lenders. With a Federal Housing Administration (FHA) loan, though, you might be able to get approved with a score as low as 500.
Is it bad to have a lot of credit cards with zero balance? ›
However, multiple accounts may be difficult to track, resulting in missed payments that lower your credit score. You must decide what you can manage and what will make you appear most desirable. Having too many cards with a zero balance will not improve your credit score. In fact, it can actually hurt it.
Is having too many credit cards bad for your credit? ›
Having a lot of credit cards can hurt your credit score under any of the following conditions: You are unable to keep up with your current debt. Your outstanding debt uses up a lot of your available credit; more than 30% utilization is best avoided. You added too many cards in too short a time.
Which credit score is used most often? ›
FICO scores are the most widely used credit scores in the U.S. for consumer lending decisions.
Is FICO or VantageScore more important? ›
While the FICO score is older and more popular, lenders may also reference your VantageScore when making credit decisions. The most important factor in both scores is your payment history.
Who uses FICO 10T? ›
Lenders including Cardinal Financial, Primis Mortgage, Premier Lending and others have recently adopted the model for non-conforming mortgages. FICO® Score 10 T provides greater precision in making lending decisions.
Why do I no longer have a FICO score? ›
Lenders, credit card companies, and financial institutions feed your credit history to the credit bureaus. Credit scoring models generate credit scores based on the information pulled from your credit report. If you do not use credit accounts, you will not have a credit report, and thus, you will have no credit score.
Is the VantageScore accurate? ›
The primary credit scoring models are FICO® and VantageScore®, and both are equally accurate. Although both are accurate, most lenders are looking at your FICO score when you apply for a loan.
