New FICO Score Changes Will Magnify Flaws in American Consumers’ Credit Profiles
American Consumer Credit Counseling says running a tight ship
on household finances now more important than ever; will issue alert to all clients
The margin for error is narrowing on American consumers’ credit profiles, with significant changes pending from Fair Isaac Corp., which produces the FICO credit score used by major lenders to rate tens of millions of consumers every year.
American Consumer Credit Counseling announced today it will issue a “FICO Alert” to its clients who receive budget counseling and other personal finance services. Fair Isaac has announced that its “FICO Score 10 Suite” scoring formula will be released in the summer of 2020 to the credit bureaus. But many consumers are in the dark about what the planned changes mean and how they will impact their scores and creditworthiness in the eyes of lenders.
“The FICO score is a critical factor in about 90 percent of all lending decisions, and it’s important for our clients to understand how these changes might impact their ability to secure credit or maintain their scores at a favorable level,” said Steve Trumble, President and CEO of American Consumer Credit Counseling.
Fair Isaac makes periodic changes to its scoring formula to provide lenders with better and more complete information and data for underwriting loans, issuing credit cards, and determining appropriate interest rates.
Information released so far suggests poor or inconsistent on-time payment histories – already a key factor in driving credit scores down – will be weighted more heavily to impact a consumer’s score negatively. Additionally, Fair Isaac will also begin closely tracking overall trends in total debt levels. Consumers who use more than 30 percent of total credit available at any given time generally see a negative impact on their FICO scores. The tracking of debt levels is designed to identify upward trends in total credit used.
“The key points of advice and counseling we provide our clients remain valid and relevant,” Trumble said. “But we believe the FICO scoring changes will magnify flaws in a credit profile, so running a tight ship with your household finances is more important than ever.”
Some key points for all consumers to consider in advance of the FICO 10 introduction this summer:
- Timely payments are critical. Expect more negative impact on FICO scores if you occasionally miss a payment or run more than 30 days late.
- Start a “positive trend” today. Mark the calendar and commit to only making timely payments going forward, and to reduce your overall debt level and credit usage.
- Attack your balances to get all open accounts below 30 percent total credit usage.
- Use this FICO change to motivate an overall financial check-up. The biggest impact form poor credit is not always the score itself or even the ability to secure credit, but the high-interest fees that rob dollars from other areas of your household budget.
- Consumers should use their time wisely in preparing and addressing any deficiencies in their score.
- While the FICO score changes will be released this summer, it may take lenders time to adopt this new model and many will stick with the older scoring model.
- Credit scores may not be affected until late 2020.
About American Consumer Credit Counseling
American Consumer Credit Counseling (ACCC) is a nonprofit credit counseling 501(c)(3) organization dedicated to empowering consumers to achieve financial management through credit counseling, debt management, bankruptcy counseling, housing counseling, student loan counseling, and financial education concerning debt solutions. To help consumers reach their goal of debt relief, ACCC provides a range of free consumer personal finance resources on a variety of topics including budgeting, credit and debt management, student loan assistance, youth and money, homeownership, identity theft, senior living, and retirement. Consumers can use ACCC’s worksheets, videos, calculators, and blog articles to make the best possible decisions regarding their financial future. ACCC holds an A+ rating with the Better Business Bureau and is a member of the National Foundation for Credit Counseling® (NFCC®). For more information or to access free financial education resources, log on to ConsumerCredit.com or visit http://www.consumercredit.com/financial-education.aspx