Today’s topic is about some changes made to the FICO Score. If you are curious about what FICO stands for, it simply means the Fair Issac Corporation and it has an important relation with credit score, specially in relation to your credit in 2021.
FICO recently came out with a new way to actually determine your creditworthiness. The scoring system they came up with is the 10T.
What is the FICO 10T? This type of credit scoring system it’s going to put a heavy emphasis on those people who are not paying on time. The way the FICO system usually works is that, depending on what bucket, you will get a certain percentage allocation whether you’re paying on time or you have a lot of debt.
They are putting a heavier emphasis on people who are actually not paying their credit cards on time and they’re also going to flag those who are either getting a lot of personal loans or simply getting a lot of new credit cards.
Changes to your Credit Score: Why new credit cards?
Because now they understand that a lot of people are doing the debt shuffling back and forth. Opening one credit card for 0% so that way you can transfer the debt from one old card that is paying interest to the newest one. That way you continue to reduce that debt without having to worry to pay for interest.
It’s not the end of the world because the way this was announced is that FICO is one of the many credit systems, and is one of the many ways to calculate your creditworthiness but it’s not a mandated one. Lenders at the end of the day still have the power to decide what kind of FICO system they want to use. The most popular one out there is the FICO 8. That’s the most common one that lenders typically use to issue a credit card or just simply issue you a mortgage rate.
Your Credit Score in 2021: VantageScore
Some lenders use the VantageScore. The VantageScore is one that you typically see in Credit Karma. That’s why sometimes when you pull your credit out from Credit Karma versus the scoring that you see in your bank application for your credit card, you will see a big discrepancy between the two or sometimes not the same. Maybe they’re close enough but not really, and that’s the reason why because they’re using a different scoring system and each scoring system has different formulas worth into each algorithm and that’s why you in essence don’t get the same credit.
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At the same time, it also has to do with the time of the reporting, because some banks report your debt sooner than others. There are a lot of factors that actually go right into it that you don’t necessarily have to worry about. Just remember that there are different types of FICO credit scores out there. The fact that this is coming out in the market does not necessarily mean it’s going to impact you directly but it always helps for you to be aware of it.
Different types of Credit Scores
Inside of the experian.com page, you can see there are different types of credit score ranges. They have their own definitions of what is considered exceptional, very good and the “not so good” ones. They show you on their website the different types of scoring systems that they have:
- FICO Score 8
- FICO Auto Score
- Mortgage Score
- Bankcard Score
There’s a big variety out there in terms of how they decide to calculate your creditworthiness.
This is definitely an article that is worth for you to check out because you will know how they range the FICO Auto Score Range, the FICO Bankcard Score Range, FICO Score and Mortgages. There are other different ways to calculate your credit score, for example:
- FICO Score 2
- Score 5
- Score 4
- FICO 10T
The last change introduced does not necessarily mean that it’s going to impact you in a negative way. At least not right away.
Credit Score: Vantage scoring system
As you scroll down on their website you will get to see how the model of credit score works. The breakdown of what they consider to be excellent, good, fair. It is fairly different from what they consider to be good or bad here under the FICO system. If you check it out you’ll learn more about the VantageScore breakdown for your knowledge.
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FICO credit score changes can lower your credit score, and we all need to know the reasons why they came up with it and what problems they are trying to resolve with this new scoring system.
You might still wonder about all this, “Ok, that’s great for me and okay it’s good to know but what do I get out of it? Or how can I just make the impact less negative for me in the event that this winds up being implemented by the bank?”. The truth of the matter is there’s nothing you can do in that sense because you really have no control of what the banks choose to do or not. What you can do is just simply look at your chances and just stay informed and monitor everything.
Changes to your Credit Score in 2021: What you can do
What you can do is just simply call the banks, whoever you have your credit card with, and just try to find out what kind of a scoring system they’re using. Whether they’re using FICO 8, FICO Bank Ranget or the VantageScore. That way you can keep an inventory of what’s happening and what type of scoring system is governing your loan or your credit card debt so that way you know what not to mess with.
If you’re looking to apply for a new mortgage, before you go through the entire application process, what you’re going to do is to call the bank, and let them know you’re considering to apply for this or that credit card but before you do, you would like to know what kind of FICO scoring system they use.
Maybe you’re thinking, “You know what? I’m not going to be late, I am a responsible person and I’m going to make sure that all of those payments are tackled on time.” Then you shouldn’t worry about the bank using the 10T. But, if you’re thinking, “Okay you know what? I do make my payments on time but I don’t want to feel like I’m being constrained to something as strict at this scoring system.”” Then, you would definitely want to check out the other scoring system options so you know everything beforehand before you even walk into whatever loan you’re looking to get or even whatever credit card you’re looking to get.
Finding out will help you better manage things but you have no control over what other banks choose to do but at least you do have control over what kind of relationships you want with certain banks.
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