Summary: Fair Isaac Corporation, the biggest credit score company, announced new model FICO 10 to determines its FICO credit scores. FICO 10 and FICO 10 T will be used by the Credit bureau to start calculating score from early 2021. Based on new model huge impact on FICO credit score expected, new methods should be applied to maintain Debt, Mortgage, balance maintenance in credit cards. Here’s how to avoid lowering your credit score based on FICO new model algorithm.

William Lansing, the CEO of Fair Isaac International corporation (known as FICO) has recently announced they are going to introduce a new model FICO 10 to calculate credit score, officially FICO score from end of 2020 and early 2021. There are 2 variants of algorithms and calculation pattern will be used to calculate credit score to get FICO score.

FICO’s newest model takes a long-term look at how you’ve managed credit. According to major credit score managing bureau Experian, Transunion and major credit score analysis companies like credit karma and Equifax FICO 10 model will have huge impact on individual and small business credit scores (Vantage Scores too).

What is FICO credit score ? How to boost FICO credit score by proper credit card usage?

FICO score meaning, an person /business capability to handle debt or history of handling finance expense. Usually, a proper credit score above 690+ or 700+ needed to answer questions like, “what credit score do you need to buy a house”, “What is best credit score to apply for credit cards like Chase Sapphire, American Express, Bank of America Travel card etc.”. Millennials’ average FICO score increased 25 points since 2012.

With old FICO credit model, FICO 8 (released on 2008) and FICO 9 (released on 2014), the basic methods to keep good credit score (range from 300 to 850) which is more than 700 FICO score was by applying simple techniques like payment of minimum due in credit card statement, maintaining correct re-payment of personal loan, car loan finance, keeping 30% of revolving utilization of total available credit limit etc. As per credit karma, the following are important factors to determine or to calculate credit score –

1) Mortgage loan or housing loan – High impact
2) Number of credit hits – Medium impact
3) Number of credit cards – Low impact (History of credit cards)
4) Personal Loan – Medium impact
5) Missing of payments – High impact
6) Revolving utilization – Medium Impact

Individuals who are looking for “How to improve FICO credit score over 700+ /Best ways to increase credit score quickly”, usually apply these factors to boost the credit score.

What is the challenges in FICO 10 / FICO 10 T Model ? How it will impact credit scores ?

Fair Isaac (FICO) corporation announced that based on new model -6.54% lesser credit score will expected to effect on persons or business which is the biggest change 110 million Americans. It happens about every five years, FICO, updates the way they calculate the credit score. CredoLab claims 90% alternative data can improve credit scoring based on the financial situation of individual. True innovators look for new data points to predict delinquency, as traditional credit raters load more transaction history into their scoring models. FICO also partner with HUD and PERC on Rental case study.

Even though, Fair Isaac mentions the new FICO Score 10 and FICO Score 10 T could give some 40 million American Families a credit bump of 20 points or more. But the credit bureaus like Equifax, Transunion, Credit karma (and Apple Credit Vantage score) warns that FICO’s new credit score changes will affect everyone on all the credibility on getting credit approval. Especially Credit score changes could impact future home buyers to get Mortgage approval .

How to avoid low FICO credit score by new FICO model ? What are the best ways (tricks and tips) to improve the credit score?

The new FICO 10 (myFICO) is not being used in the finance industry to allocated loan ,personal finance, credit card approval etc. It is expected to come in to action by 2021. However homebuyers still need to be prepared to keep their credit up.

Below are the major steps to follow to improve credit score under new FICO formula and model

1) Personal Loan : The high impact will be on financing on personal loan. As per Federal Housing Administration and United States Department of Housing and Urban Development, if you take a personal loan instead of a car loan or a home loan finance, it has more bad impact on credit score. So maximum try to avoid Personal loan to improve credit score.

2) Home loan / Car loan : Since new algorithm and formula is being used in new FICO 10 (T) model, it will track mortgage insurance or car insurance availability for the loan. Even though if you paying “down payment” and EMI correctly, the insurance availability (or cash balance) will improve the credit score.

3) Cheque / Check Clearing History: The clearing history on your Cheque and cash balance also will be considered under new FICO model.

4) Credit card Expense Trend: Trend tracking of credit card usage is most important factor in new FICO score calculation. This trend tracking will give entire financial discipline a person or business (lending) maintains, and based on that credit score is calculated. This is the major difference between FICO 8 (FICO 9) with new FICO 10 model. High impact will be on the combination of Loan – Cash balance (savings account) – financial power – Credit card usage trend.

5) Hard Inquiries : Each hard inquiry will lead to low credit score, however it will low impact overall.

6) Revolving Utilization: Always keep total outstanding balance amount in credit card is 30 % or less to improve the FICO score. This will be medium to high impact.

What are the wrong assumptions (myths) on credit score calculations and improvement steps ?

You will see lot of taglines says “How to understand and improve your credit score in under 30 minutes”. There are a lot of myths surrounding credit scores and many people do not know their FICO score. Please note that, in under 30 minutes nobody can understand how to build an excellent credit score.

One of the article CNBC Select, explains what credit score range is considered excellent, how an excellent credit score can help you and how to get a free credit report. The only way to improve credit score in best ways is going slow and steady measures. Banks like capital one, Citibank, discover, BOFA will help you see your credit score monitoring. You can also track credit history in that. Another major website you should registered is Credit karma to get detailed report on the credit score impacting areas.

What are the impact on retired people due to new FICO score formula changes ? Will new credit score hurt people badly ?

Primarily the impact will less if they follow basic guidelines for improving the credit score. However if you only pay minimum due, and not paying full outstanding statement balance then it could hurt them badly too. Also look at the above 6 major steps to improve FICO credit score with new model / formula.

Finally, as explained in the article over 110 million consumers could see their credit scores change under new FICO scoring, and you could use any of the above steps to maintain a good credit score for you. Following the strict and proper guidelines will ensure that a good credit score will build up gradually for you.

Do you know a proven step to improve the credit score ? Please put it in the comments section.

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