Lenders and creditors are always looking for better ways to evaluate their borrowers.
This means that credit scoring companies are constantly looking to update their scoring models.
Unfortunately, CNBC reports that nearly 4 in 10 Americans “have no idea” how their credit score is calculated. Get ahead of the curve by staying up-to-date with credit scoring!
Here, we explain the latest changes to credit scores and how they affect consumers. We update this page regularly, so check back for the newest information.
Changes to credit rules
Changes to medical collection reporting
In 2016, the three credit bureaus – Experian, Equifax, and TransUnion – changed the rules concerning medical debt and credit reports/scoring. Together, they created the National Consumer Assistance Plan. According to this plan, medical debts won’t be reported until a 180-day “waiting period” passes. This gives insurance payments time to kick in. If an insurance company pays a medical debt in collections, it is immediately removed from a credit report.
As of April 2018, tax liens are no longer included in your credit history. This means if you have a tax lien, it won’t affect your credit score. You still have to pay, though.
FICO stands for Fair Isaac Corporation. 90% of lenders in the U.S. use FICO credit scores, so this is the most important score to monitor.
Currently, FICO 8 is the most popular of their scores. However, they’ve come up with multiple new models since FICO 8 came out in 2009.
FICO Resilience Index
After the COVID-19 pandemic changed America’s economy for the worse, FICO’s new Resilience Index seems especially timely. The Resilience Index is a ranking from 1 to 99 that reflects how sensitive a consumer’s financial standing is to economic downturns.
A consumer with a ranking of 1 will weather a financial storm quite well. Someone with a 99 will be greatly affected by a worsening economy. This new system could help those with lower FICO credit scores (but good Resilience Index scores) qualify for more opportunities.
This is the newest scoring model from FICO. It launched January of 2020, and comes with some pretty significant changes. For example, late or missed payments will hurt your score more than with past scoring models. Personal loans could hurt your score. Credit card debt will also have a bigger impact because FICO 10 emphasizes credit utilization more than other scores.
FICO 10 T
This is a variation of the FICO 10 score that considers trended data (hence the “T”) in its calculations. Trended data, also known as time-series data, shows how you’ve handled your finances for the past 24 months. FICO 10 will still use the five main criteria that all credit scores do: credit history, credit utilization, credit age, new applications, and types of credit.
However, its algorithm will also take this trended data into account:
- Minimum payments
- How much you paid each month
- Your credit card account balances
This could be a good thing or a bad thing, depending on how you handle your money. For example, if you are the type of person who pays off the full balance on your credit cards each month, you will stand out from the pack. If, however, you always carry a balance, this will have a negative impact on your score even if you make the minimum payments.
This scoring model launched in 2014. This score lessened the impact of unpaid medical accounts. FICO’s research showed that these accounts were not good indicators of credit risk. Additionally, any type of collections account that a consumer pays in full will not bring down their credit score. Rental history can also be included in this score if your landlord reports it.
UltraFICO is more of a service than a score. Consumers can connect their checking accounts, savings accounts, and Money Market Accounts to UltraFICO. It analyzes these accounts for signs of good money management. Then, it creates an UltraFICO score that can influence your real score.
This service didn’t gain a lot of ground. A newer service called Experian Boost does something similar and is more popular.
VantageScore designed their scoring models to be able to score more consumers than FICO. They also claim that their scores are easier to understand and more consistent. The most popular is VantageScore 3.0, which is similar to the FICO 8 scoring model, but the newest is VantageScore 4.0.
Like FICO 10 T, the VantageScore 4.0 scoring model takes trended data into account. When developing this model, VantageScore used machine learning to devise a method that better scores consumers with short credit histories.