Late payments, bankruptcy, identity theft and there are a few events that can make your credit scores take a nosedive. Seeing your credit score plummeting is not a pleasant experience as it can make it onerous to address your current and future financial needs. Those who are already having low credit scores, they want to know how to have a good credit score. And, those who have good credit, they have completely different questions to ask such as what is a good credit score for a mortgage.
Good or bad, whatever your credit score is, do you know how the latest changes in the FICO scoring model can affect it? FICO 10 is here and consumers need to know that their credit scores might be changed. Though the shifts in the trenches are not significant, still, you need to know how this is going to affect the steps you are taking to improve your scores. Banks, credit unions and other lenders might take their time to adopt the new version of the scoring model.
According to credit experts, a product by FICO can have relevance for consumers only if it gets used. TransUnion, Experian, and Equifax are the bureaus that use your credit report and scoring models to give you a credit score. Lenders get credit reports of potential borrowers from these three bureaus. This new version of FICO will be available at these bureaus at the end of the year. If you are planning to borrow money in the near future, start showing interest in this scoring model as lenders have started learning about this model. Some might also be testing the FICO 10.
Credit experts predict that credit scores of around 110 million consumers are not going to be affected much. About 40 million consumers might see their credit scores dropping by 20 points. Roughly the same number of consumers will see their credit scores increased by 20 points. It’s because FICO 10 is going to treat late payments and debts more severely. If your balances are low or you are paying on time, your credit score will be increased.
The latest changes show that the trending data will be included in decision-making. VantageScore’s latest version also considers trending data. Financial institutions use VantageScore for prescreening applicants. They use this model to manage existing credit card accounts.
FICO 9 was released in August 2014. FICO 8 was released in 2009. Though FICO did not disclose how well these models were used by lenders, the use of FICO is picking up. What is the possible reason behind this slow adoption? It’s because the lending industry oversees roughly $14 trillion in consumer debt. Lenders use the classic FICO scoring model to make decisions related to mortgages and other consumer loans. A lot of leading lenders are using the classic FICO scoring model. However, things are likely to change in a few years.
Whichever credit score model lenders are going to use, as always, they are going to weigh aspects of your financial life such as income, stable housing, length of employment and more. They also consider some of the aspects that are not reflected on your credit report. So, whether your lender is going to adopt FICO 10 or not, continue good financial practices.
Now coming to the question of people having a low credit score, how to have a good credit score. You have to take the same good steps. Experian lists the following seven steps for increasing credit scores.
- Make sure that you are paying your phone, water, electricity and other utility bills on time.
- Make cell phone utility bills on time and get credit.
- Pay off your credit card bills and debts and keep your balances low.
- Do not open new credit accounts if not needed.
- If you are not using your credit cards, don’t close them if you are not paying for them.
- Having too many hard inquiries on your credit report can decrease your credit score. Applying for credits adds hard inquiries on your credit report. So, avoid applying for too much new credit.
- Review your credit report on a regular basis and dispute inaccuracies if you find any.
These are the steps you have to take to increase your credit score. Keep an eye on the latest developments in FICO 10.