Your credit score will likely be good, despite some differences between these models. Similarly, bad scores will remain bad. Each credit scoring model uses a different method of calculating your score. However, they all have the same goal: predicting the risk of a consumer's credit. This means that you will see the impact on your score.
New credit scoring model
All three credit reporting agencies will have access to the new FICO10 credit scoring model by 2020. It is expected to increase credit scores of 40,000,000 consumers while lowering scores of another 110 million. The trended data is used to predict the likelihood for default. A higher FICO score will be awarded to consumers who have a good payment history and a lower balance than those who have a high balance.
FICO10 uses a multidimensional approach in credit scoring. It also includes trend data about revolving accounts, minimum payments requirements and amount paid towards balances due. This data allows FICO to identify consumers who make timely payments. This method reduces the impact from a single event. This means that a single charge to pay for a vacation will not significantly impact your score, while a series of late payments and high-interest debt will have a higher impact.
Modifications to existing models
The recent release of the new FICO 10 credit score model offers a number of changes to the credit scoring system. The new model uses new algorithms and data to calculate credit score. On average, scores will rise by 20 points for nearly 40 million people. These changes will reduce the disparities between scores of consumers with different credit histories.
One modification to the scoring model is the inclusion of trended information, which displays credit card or debt balances in the last 24 months. This information rewards responsible use of credit cards, while harming those who are falling behind in payments. This information penalizes individuals with multiple debts, or high credit utilization.
Non-traditional credit has an impact
The new scoring algorithm, FICO 10 T, uses more recent data from more accounts than FICO 10 Basic. This data can help predict a borrower’s credit risks more accurately than the basic FICO10 score. A basic FICO score takes only a snapshot from a consumer's credit reports at one time. Particularly useful for the credit usage portion of the score is trend data. Credit scores used to only look at the last seven to ten years of payments history. The rising balance will affect a borrower’s score.
New model takes into consideration the usage rate of all credit cards and averages the peaks, valleys. This means that a 20 point decrease in one account could have an impact on millions of consumers' credit scores. Luckily, for renters who don't own their own home, they can rely on the landlord's credit data to determine whether or not they can borrow money.
UltraFICO (tm) Score Modifications
Fair Isaac Corporation developed UltraFICO, a credit-scoring system. This score is especially useful for consumers with bad credit ratings or limited credit histories. Consumers who have had financial difficulty or limited credit history will be able to see a significant improvement in their scores with the new scoring system.
The new scoring system uses more data than the FICO credit score. It includes cash flow data from a consumer's bank accounts. While these data might not give a good indication of a consumer's creditworthiness or creditworthiness, UltraFICO can help increase credit access for everyone.