More than half of Americans may be in for a surprise this summer when they check their credit score.
On Thursday, FICO announced that it was drastically changing the way that it scores personal credit. The credit monitoring service is rolling out a new process to grade scores. The new tracking model will put a higher emphasis on personal debt levels as well as loans.
While the previous models have merely been snapshots of a person’s credit history, the new process will take a more historical view. For example, the new FICO scores will now more accurately track account balances for the previous two years. This will give lenders greater insight into an applicant’s management of credit.
According to FICO’s vice president of product management, Dave Shellenberger, approximately 80 million consumers will experience a shift of 20 points or more on their credit report as a result of the new tracking method. About half of those figures will be an increase while the remaining half will see credit scores go down.
Those most likely of seeing a significant drop in their scores are those consumers who carry a high amount of debt compared to their open credit limits. Conversely, people who are committed to making their payments on time and who do not carry a large amount of debt will see a bump in their score.
According to CNN’s report, while the fundamentals of credit monitoring have not changed, the new tracking process will put a greater emphasis on your ability to manage debt. The new model also looks at personal loans in greater detail than the previous tracking system. With so many more online personal loan services, consumers are relying on these fast forms of cash at increasingly high rates. The proliferation of this easy access to cash has led to greater amounts of personal debt across the country as a whole.
Based on a 2019 report, the average FICO score of an American consumer is now 706.
Dil Bole Oberoi
