Fico released a new credit scoring system, and they claim it is more accurate than ever. For us, the real question is, what has changed and how does it affect us? Let’s dig into it.
Credit companies are constantly trying to improve their system to better predict credit worthiness. This allows them to predict more accurately who will default on their loans and who will not.
Their new score, FICO 10, doesn’t introduce any new elements but it does change the impact that certain actions can have on your score. The top three things that you need to watch out for with this new system are the following:
1. Late Payments- An occasional late payment is still not the end of the world for your credit, but now they will have a slightly bigger impact than they did before.
2. Credit Cards- With this new system, you could be penalized at a bigger rate by not paying off your credit cards in full every month.
3. Personal Loans- Personal loans bear a much higher weight in this new system especially if you use them to consolidate but then continue to rack up more debt afterward.
It is important to note that all lenders don’t use the same credit system, and even the early adopters won’t be using this new system for some time. Especially with larger lenders, it often takes them years to transition into new systems. So in reality, there is no need to get stressed out about this new score. As long as you are doing the simple things we all know we should be doing to build good credit, then this new system will only help you.
Having good credit can save you tons of money when making big purchases but also when applying for insurance. Nowadays, more than 90% of all auto insurance companies use credit as a factor when determining your premiums.
Especially with credit, it is easy to get overwhelmed by all the details. Just remember, even with all these changes, having good credit comes down to three basic things.
1. Paying your bills on time every time.
2. Keeping your balances as low as possible.
3. Not applying for too much credit too often.
Wherever you are in your credit journey, just remember that if you can consistently do these 3 things, you are on the right track to getting where you need to be.