as much as it would under
previous models. The use
of trended data “creates a
smoothing effect” over such
blips, says Joanne Gaskin,
vice president of scores and
analytics at FICO.
On the f lip side, paying
off a big chunk of credit
card debt to decrease your
credit-utilization ratio—
especially if you take out a
personal loan to do it—won’t
likely give your score as
quick of a boost as under
previous models. And re-
cent late payments may be
more heavily penalized.
FICO says that credit cardFICO, THE CREDIT-SCORING
giant, is adjusting how it
calculates its three-digit key
to your creditworthiness.
Consumers who have rising
levels of credit card and
other debt could see their
FICO scores take a hit.
But if you already have an
above-average score, it may
get even healthier.
With its new FICO 10 T
score, FICO incorporates
“trended data,” reviewing
a consumer’s account bal-
ances and payment activity
on loans and credit cards
over the past 24 months.
If you steadily pay off debt
over time, that has a posi-
tive effect on your 10 T
score.
Paying the full balance
on your credit card each
month is also good for your
score, says Ted Rossman,
of CreditCards.com. Or, if
you pay only the minimum
amount due for a while and
later bump up your monthly
payments, that also helps
your score, he says.
Plus, certain short-term
changes in account activity
may not hurt your score as
much as they would have in
the past. Say that you typi-
cally use a small percentage
of the credit available to
you on a credit card (a low
credit-utilization ratio im-
proves your credit score)
and pay off the full balanceEXTRA CREDITCHANGES ARE COMING
TO YOUR CREDIT SCORE
FICO’s newest model takes a long-term look
at how you’ve managed credit.monthly. But then you
book a vacation with your
card, racking up a big bal-
ance and carrying some of
it to the following month.
The 10 T score views that
event as an anomaly, and
it may not harm your scoreHow FICO Scores Have Evolved
Every five years or so, FICO updates its credit-score formula. Each version builds on the previous one.
Here are the new features that FICO added to each of its three latest score models.and auto lenders that re-
quire a minimum score of
680 (on a scale of 300 to
850) may approve about 6%
more applicants under 10 T
compared with FICO 8, a
model that lenders com-
monly use now.
Lenders are usually slow
to take on new scores, so it
could be years until FICO 10
T is broadly adopted. And
the fundamental advice to
maintain a strong credit
score hasn’t changed: Pay
your bills on time, keep your
credit-utilization ratio low
and apply for new credit
sparingly. LISA GERSTNERAHEAD14 KIPLINGER’S PERSONAL FINANCE^ 04/
FICO 8
➜Released in 2009 and commonly
used by lenders today.
➜Using a high percentage of avail-
able credit on a credit card is more
heavily penalized.
➜A single late payment isn’t as detri-
mental to your score, but numerous
delinquencies are more harmful.
➜Collection accounts with original
balances of less than $100 are ignored.
➜Becoming an authorized user on a
stranger’s credit card through “trade-
line renting” has little benefit.FICO 9
➜Released in 2014 and
gaining wider adoption
by lenders.
➜Paid-off collection
accounts are ignored.
➜Unpaid collection ac-
counts related to medical
debt have less of a negative
impact.
➜Rental-payment history
is considered when in-
cluded on a credit report.FICO 10 T
➜To be released mid to
late 2020.
➜ Incorporates “trended
data,” analyzing the past
24 months of balances
and payment activity on
credit cards and loans.
➜ Recent late payments
may be penalized more
harshly.