Fair Isaac Corporation, the company in charge of producing the FICO credit score range, is about to change the way they calculate credit scores for millions of Americans. The FICO credit score is very important, as it determines your financial capability to purchase high-expense items, such as, a car, home or apartment.
Approximately, every five years, FICO determines if they need to update the way they determine credit scores. Financial experts, such as, The Wall Street Journal, are reporting that the new score will impact those with personal loans who have habitually fallen behind on payments. FICO also announced the inclusion of 10 T, a product that will focus on a person’s trending debt over time.
People take out personal loans for various reasons, such as, student loan debt or to consolidate credit card debt, to achieve lower interest rates. FICO will now be determining whether millions of Americans are using these personal loans responsibly.
With the old FICO scoring system, if you paid off your credit cards with a personal loan, your credit score would rise. Now, FICO will audit your personal loans and decipher your repayment trends to determine whether you are actively paying down your debts or falling deeper into debt. With this new scoring system, FICO will be able to detect if you are more of a risk than previously considered.
This is great news for home buyers with a healthy financial status and most notably, it will give lenders advanced information, so they can extend credit to risk averse borrowers at reduced rates.
In the meantime, here are some steps you can take to make sure your credit score is in optimal condition: