It’s possible that your credit score will change soon – either up or down. The company behind the most popular credit score (called your “FICO score”) has announced some changes to how they will be calculating scores starting this summer.
There will be a stronger emphasis on your level of debt, along with taking a longer view of your historical payment history. There will also be more attention paid to whether or not you have personal loans.
Previously, FICO did consider your payment history but put heavy emphasis on your most recent history. Now they will look further in the past to try to level out the ups and downs of life. They will also take a longer look back at your levels of debt over the past few years and average out how much debt you carry.
By looking over a longer time horizon they are hoping to get a better feel for how you manage your debt and payments over time, rather than penalizing or rewarding you for what has happened just prior to having your credit report pulled. This means that if you normally pay off your credit card balances each month you won’t get penalized for one big purchase as you may have been in the past.
It’s projected that 80-110 million people across the US will see their score move 20 or more points in either direction. About half will see their scores go up, and about half will go down.
One controversial change is in regard to personal loans. Even if you pay it on time, just the fact that you have a personal loan may ding your FICO score. Many people will take out a personal loan to consolidate their credit card debt, but then they just run up their credit card balances again later. So, your FICO score may suffer, even though it’s a “smart” financial move in the short-term.
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