New FICO Model Could Change Scores by 20 Points – for Better or Worse…

It was just announced that coming this summer, FICO will be changing the formula for how credit scores are calculated. With about 90 percent of lenders in America using scores provided by FICO, this will have a big impact on whether or not people qualify for a loan, as well as determine their interest rate. How will this affect you? Keep reading to prepare for what’s coming.

The Fair Isaac Corporation or better known as FICO is a data analytics company that created a scoring system used by lenders to help determine lending decisions. The scoring system takes a percentage of different categories of how your credit is used to determine an overall score. Here’s a quick breakdown:


  • 35% comes from your payment history
  • 30% comes from credit utilization
  • 15% comes from the age of credit history (or how many years you’ve had credit)
  • 10% comes from your credit mix (types of credit you have)
  • 10% comes from whether you have any new credit


A new version will launch this summer, updating from FICO 9 to FICO score 10 and FICO 10 T. This has been the first formula change since 2014. This new model will take into account the credit balance for the last two years, rather than the most current balance. Think of it as it watching your trends over time in acquiring debt rather than where your score stands today. Your score will change if your account balance has consistently grown bigger during that time period. If it notices a big spike randomly throughout this period, it will not count as much as consistent activity.

Some could see their score lessen or improve anywhere up to 20 points. Those who are currently obtaining debt, regardless of how much, will most likely see their score decrease. Alternatively, if someone is making steady payments or not adding to their existing debt could see their score improve. Some believe this could create a bigger gap between fair and excellent scores. Depending on where you stand, this could create a slight shift, or create a bigger impact than wanted. The good news is consumers have until summertime to get a better handle on their credit score situation.

Lending companies do use a variety of scoring models, like VantageScore used by TransUnion, Experian, Equifax, and it’s up to the lenders to update to the latest version. Similar to the way a new computer program or operating system has new updates every so often; the same goes for the FICO changes and the scores will vary from each version.

More specifically, mortgage companies use scoring models that are compliant to Fannie Mae. They take the score that is in the middle to make their decision:

Fannie Mae and Freddie Mac require lenders who want to sell them loans to use a FICO score whenever a usable score is required. Lenders get these scores from the three credit bureaus — Equifax, Experian, and TransUnion. None of the bureaus use the latest version of FICO for this purpose; instead, they use FICO Models 2 (Experian), 4 (TransUnion) and 5 (Equifax). – MarketWatch

So how can you prepare for this change? Becoming educated on how you rack up debt, and how your score is calculated is a good place to start. You can make multiple payments each month to reduce your credit-utilization-ratio. Try reaching out to the credit unions to correct any errors on your credit report. Most consumers don’t know this, but errors pop up on reports all the time. You can work with the credit bureaus to get them resolved and possibly see your score jump up. Ever hear of Experian Boost? This program allows consumers to provide their utility bills to show consistent, good payment behavior to count towards their overall score. On average, those signed up with the program could immediately see their score improve more than10 points.

It can seem like a big task to keep up with all the tips and easily overwhelming. Overall follow Matt Schulz, the chief industry analyst at CompareCards underlying tip: “Good credit is still about three things: paying your bills on time every time, keeping your balances as low as possible and not applying for too much credit too often.”

Keep in mind, when applying for a loan, there are many factors that go into the final decision. A credit score is a significant leader, but lenders may also look at any red marks or delinquent status from the past, or your debt-to-income-ratio.

It’s encouraged to be prepared and understand your current score and how your credit is being used before acquiring a loan.

It’s always a good idea to take steps to improve your score. If you’re not sure where to start, we can help! Give our office a call and we’ll do a review of your current financial situation and what actions you can take!


This article is intended to be accurate, but the information is not guaranteed. Please reach out to us directly if you have any specific real estate or mortgage questions or would like help from a local professional. The article was written by Sparkling Marketing, Inc. with information from resources like Market Watch and Forbes.