Why is FICO making these changes?
One reason is that credit scores for U.S. consumers have been creeping up since 2009, reaching an average of 706. The higher scores reflect some combination of improved creditworthiness as the economy has strengthened, changes to FICO’s scoring over the past several years, and the effects of a settlement between several states and the nation’s three biggest credit reporting companies, TransUnion, Equifax, and Experian. As a result of that settlement, the credit reporting companies expunged negative credit items from millions of Americans’ reports. FICO is adamant that the improving scores reflect improving creditworthiness, not artificial score inflation, but at least some lenders are not so sure. They’re also concerned about what will happen if the economy weakens.
Will my credit score go up or down?
It depends. According to the The Wall Street Journal, The new score will take into account two years of debt levels rather than just the previous month. That means if, say, every year you run up a lot of credit card debt buying presents at holiday time, but then you quickly pay off that debt in the new year, the negative effect on your credit score will be smaller than in the past. On the other hand, if your debt level has been increasing over time, you’ll see a bigger hit to your credit score than in the past. Missed payments will also weigh more heavily than they did before. On the other hand, if it’s been more than a year since you last missed a payment, you may wind up with a higher score than you would have had before.