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What You Need to Know About FICO® Score Changes

Your credit score is a 3-digit number that heavily impacts your financial life. For example, if you want to upgrade from a debit card to a credit card or take out a home loan, your credit score will determine whether you get approved, and at what interest rate. 

FICO® Scores are considered the industry standard when it comes to credit scores. Although there are many different credit scoring models used by credit bureaus, when you apply for a loan or a credit card, odds are, the lender’s going to use your FICO Score to determine if you are a risky borrower. So it’s extremely important to know what your FICO Score is and how it’s calculated. But something you might not be aware of is that FICO actually updates the way they determine credit scores every so often, and these updates can sometimes impact your score.

In fact, FICO’s most recent score change occurred during the summer of 2020, when they released FICO 10 and FICO 10 T. So what do these changes mean, and how do they impact you? Read on to learn more about FICO Score changes.

What Factors Go Into a FICO® Score?

Before we talk about the changes to FICO Scores, let’s break down exactly what goes into your FICO Score calculation. 

FICO takes the information that is reported to the credit bureaus — your credit history — and creates a score that shows your creditworthiness. The exact calculation isn’t shared, but there are 5 main factors it considers when calculating your credit score:

  1. Your payment history is the largest component of your FICO Score. Have you done a good job repaying your debt in the past? If you’ve made on-time payments, a lender may feel more comfortable that you’ll continue making payments in the future. 
  2. The amount you owe. Is your credit maxed out? Do you have a large credit limit but very little debt outstanding? A FICO Score includes how much you owe vs. how much you are able to borrow (also known as your credit limit). 
  3. Length of your credit history. The longer you’ve been effectively managing your credit, the better off you’ll be when it comes to your FICO Score. 
  4. What does your credit mix look like? Do you have a mortgage, a car loan, and a credit card? FICO Scores take into account your available credit as well as the type of credit you have. This isn’t a major contributor to your score calculation, but it will be included. 
  5. Do you have new credit? Opening a number of new credit accounts within a short period of time can hurt your credit score. Why? Lenders may worry you’re taking on a lot of debt because you’re about to experience financial troubles.

Changes to FICO® Score

You might be asking yourself why FICO would change their credit scoring model in the first place. If it ain’t broke why fix it — right?

Well it’s not so much that FICO Scores are broken in any way, but in order to reflect improved analytics and new data, FICO periodically releases new versions of their credit score models. Anything from a new technological advance to changes in consumer behavior can invoke a score update from FICO and other credit scoring companies. 

Each new version is made available to lenders, but it’s up to them to determine if and when to implement the upgrade, which means many lenders might still use previous versions of FICO Score. In fact, the most widely used version as of 2021 is still FICO Score 8, even though it has been followed by FICO Score 9 and FICO Score 10 Suite. 

There are two commonly used types of consumer FICO Scores:

  • Base FICO Scores: These scores are created for any type of lender to use, as they aim to predict the likelihood that a consumer will fall behind on any type of credit obligation. Base FICO Scores range from 300 to 850.
  • Industry-specific FICO Scores: FICO creates auto scores and bankcard scores specifically for auto lenders and card issuers. Industry scores aim to predict the likelihood that a consumer will fall behind on the specific type of account, and the scores range from 250 to 900.

So what do the latest FICO Score changes mean for you and your credit score? Read on to find out.

Newest FICO® Score: What is FICO 10 and FICO 10 T?

The last time FICO changed its scoring model was back in 2014 with the introduction of FICO 9. That scoring model included rent payments (where available) in the calculation. It also put less emphasis on medical debt and disregarded collections payments that were fully paid off. 

Now that we’re looking at FICO 10 and FICO 10 T, there are additional changes that we can expect to see. 

The biggest change is that FICO 10 T uses 24 months of trended data in your score calculation. This trended data can show how you’ve managed your accounts over the past 24 months. With past FICO scoring models, potential lenders could see how much debt you have outstanding, but they didn’t know whether your outstanding debt has been increasing or decreasing over time. 

For example, do you carry a balance every month on your credit card, or pay it off? Trended data shows whether you carry a balance every month and whether you’re increasing or decreasing your debt balance over time. This change rewards you if you are decreasing your debt balance, but could harm you if you’re amassing more debt during that time. This score also weighs missed payments more than previous FICO scores.

In addition to using “trended data,” FICO Score 10 Suite has other changes, like potentially penalizing people who carry both personal loans and credit card debt, or those with high credit utilization for a long period of time.

The following list summarizes the key changes to the FICO 10 and FICO 10 T scores: 

  • Places greater weight on missed payments
  • Flags certain customers who sign up for personal loans
  • Takes a deeper dive into consumers credit history, looking at “trended data” for the past 2 years
  • Puts more weight on rising debt levels

Did You Know?

FICO recently rolled out the UltraFICO™ Score, which allows consumers to link checking, savings, or money market accounts as a way to broaden their access to more lending options and better terms.

How Does This Impact You?

The New York Times predicted that the new FICO 10 Suite would modestly swing around 110 million people’s scores by less than 20 points, and 80 million people would see their score change by more than 20 points – in either direction. 

The new scoring model also likely creates a wider gap between those who are considered credit risks and those who are not. Consumers who already have good credit, and who continue to pay down their already existing loans and make on-time payments, likely saw their scores improve. But those with poor credit saw bigger dips in their scores under the new model.

Even if your score was affected by the new model, the impact might have been minimal. Keep in mind that there are a number of different FICO Scores used, and your lender(s) may not adopt the latest FICO Score 10 Suite model in their lending decisions.

What can I do to improve my credit score across scoring models?

No matter the scoring model, responsible credit behavior will always benefit you. With all FICO Scores, taking the following steps can help you improve your credit: 

  • Pay bills on time each month
  • Keep credit card balances as low as possible
  • Hold off on applying for too much credit too often 
  • Keep older credit accounts open
  • Use a mix of different credit types

How often is FICO Score updated?

Your credit score will continually go up and down as information on your credit report gets updated or each time any one of your creditors sends information to any of the 3 main credit bureaus — Experian, Equifax, and TransUnion. You can generally expect your credit score to update around once a month, but it can be more frequently depending on your account.

Adjustments to FICO’s scoring models, however, happen whenever FICO feels it’s time to do so in order to better reflect analytics, new data, and changes in consumer behavior. 

Final Thoughts

The bottom line is that no matter how credit scoring models might change, it’s important to continue to monitor and enhance your credit score. Your score will always be used to judge your financial stability and reliability in the financial world, so do what you can to build and manage your credit properly and be a responsible borrower. Consider things like a Chime Credit Builder Visa Credit Card¹ to start building your credit from the ground up, or open a savings account and begin making monthly automatic payments to avoid falling into debt.

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