Tara Siegel Bernard wrote an article for the New York Times titled Your Credit Score May Soon Change. Here’s Why.

« The Fair Isaac Corporation, the company that creates the widely used three-digit FICO score, is tweaking its formula. »

« FICO adjusts its [formulas] every few years… This time, the company is offering two new scores, FICO 10 and FICO 10 T, and both differ from the previous formula. »

« Instead of looking at just a static month of your balances, FICO 10 T will look at the past two years or more… That should mean your scores will better reflect the trajectory of your behavior. (VantageScore, a lesser-known score provider that is a joint venture of the three big credit-reporting companies, has already incorporated this into its formula.) »

« There are other changes, too. FICO 10 T will weigh recent missed payments more heavily and penalize those who use a high percentage of their overall available credit for long periods. »

« People applying for most mortgages will not be affected, at least for now. That’s because home loans guaranteed or backed by Fannie Mae and Freddie Mac, which include the vast majority of mortgages, are still required to use older versions of the FICO score. »

« Many other lenders are also using older FICO formulas, and it remains to be seen how quickly they adopt the new scoring method — or if they will decide to change. »

« The big credit-reporting companies — Equifax, Experian and TransUnion — will all offer the updated scores by the end of the year. »

« Because the FICO 10 T calculation has a longer field of vision, it pays to get your financial life in shape as early as possible before applying for a loan… In the past, people trying to polish their scores right before applying for loans were told to pay off their credit cards or get the balances as low as possible a month or two before submitting an application. That won’t work as well now. »

 

 

 

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