FICO scores are the most widely used credit scores in the United States and they’re changing in a way that could make it harder for many to get loans.
The scores can range from 300 to 850.
Right now the average credit score sits at 703. That’s considered a good score.
But, the company that creates these scores is switching up how they are calculated and that could impact millions.
FICO scores are used to determine whether you can receive a new credit card, or buy a home, get an auto loan and many other things.
Speaking on CBS This Morning, business analyst Jill Schlesinger says revisions to the process happen periodically.
“The folks from FICO said it was a normal process,” she said.
“A lot of credit analysis that I spoke to said it also it may be that some of their clients, big banks and financial institutions, wanted to see what would happen if the economy were to sour,” Schlesinger explained.
The company will now grade customers with growing debt and missed payments more harshly and unsecured personal loans could also hurt your score.
“They also are taking a longer window to look at your credit payment history,’’ said Schlesinger. “Previously they might have looked at the last month or two months. Now they’re going back 30 months so they can see a pattern.”
She says you need to “Think of the credit system, in some cases, as like an early warning system to the big banks.”
FICO is the most widely used credit score in the country, and the changes could create a growing divide.
“What it does is it creates a world of haves and have nots,” Schlesinger said. “If your score is good and you’re a good payer, you’re okay, your scores probably going to improve.
“But, if you are a little bit late and that’s happened more recently that could hurt you,” she said.
So–basically, good credit situations will get better, bad ones will get worse.
Here’s how it boils down:
If your fico score is above 680 and you keep managing your loans well, your score will go up more than it would have before. If your score is under 600 and you keep missing payments – your score could drop more dramatically than before.
Here are some tips to help keep your credit score high:
- Pay your bills on time, all the time.
- Keep balances on your credit cards well below their limits.
- Don’t apply for too much credit, too often.
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