Big Changes May Be Coming to Your Credit Score!

Your credit score could soon go up… or down!

Thursday, FICO announced a new scoring model that will take into account your overall debt level, including personal loans.  Previously, scoring models focused on snapshots of payment histories, however, the new model will give lenders more information about how overall credit (and debt) is managed by analyzing payments over time, including account balances (and changes) over the past two years.

Approximately 80 million of us will likely see a shift of 20 or more points, with about 40 million scores going up and another 40 million going down.  Those of us who carry a high amount of credit card debt in relation to overall credit, or with recently missed payments, could see a significant drop in our credit score.  However, those of us who make on-time payments, lower balances, and less overall debt should see a slight credit score increase.

What does this mean for you? 

Well, since two years of payment information will be analyzed, those who normally pay credit cards off monthly likely won’t be dinged as much for the occasional high balance, or those larger, one time purchases.  But those of us who consistently carry a balance will likely be the ones who will see a drop in our FICO score.

What can you do to combat a drop in your FICO score?

Obviously, paying off credit cards monthly will always result in a better score.  And if you’re unable to pay off most or all of your credit card debt?  Now is the time to start working toward that goal.  The sooner you pay off those credit cards, the less this change will impact your credit score (and your ability to secure credit in the future).