Arriving Summer of 2020: The New FICO 10 Scoring Model
Here's What to Expect ...
Hotter temperatures aren't the only thing that will soon be rolling in. A hot new FICO Scoring model will also make its entrance at some point during the upcoming summer months ...
A new credit scoring model isn't that surprising of a development. Since its inception in 1989, FICO Scoring has evolved and changed many times.
This new and latest version, called "FICO Score 10 and FICO Score 10 T", is to be released to credit bureaus this coming summer or early fall. It will feature some broadened elements to the calculation of credit scores.
The latter version ... FICO Score 10 T ... will utilize what is called "trended data". As the tag-name suggests, this scoring model will use a wider scope when taking consumers' financial actions into account. Trended data reveals just how a consumer uses their money and the credit they have available to them.
FICO Score 10 T will analyze and weigh:
- A consumer's credit habits
- HOW consumers utilize their monies to address their debt(s)
- HOW account payments were made over a 2-year period (thus establishing a trend)
- Delinquencies (if any), will be weighed more harshly than in the past
- The RATIO of Debt Utilization VS Available Credit
- The LENGTH of a consumer's credit history
- Personal Loans, often seen as riskier, will now be flagged and considered
- The "cocktail" or mix of your credit usage
Just how much benefit a consumer realizes (or doesn't) from this new credit scoring model will be mainly dependant on how they've handled their credit/debt over a trended data 2-year window.
- If a consumer has managed their credit/debt well, utilized lesser amounts of available credit, and avoided payment delinquencies ... they may see a small modest boost in their credit score
- If a consumer struggles with the management of their credit/debt, has higher credit utilization ratios (higher balances) or has late/missed payments ... they will most likely see a drop in their credit score
When a consumer may see a change or benefit from the new scoring model is also dependant on many things.
Why? Because there are so many older versions of FICO Scoring available and still in use.
It's quite feasible that an applicant might receive a lower score from one lender using the new "FICO Score 10 T" model ... and not run into issues when applying for a new loan or home mortgage from other lenders.
Again why? Those Lenders could still be utilizing an older credit-scoring model that would award the applicant a higher score. This aberration might occur until all lenders are using the newer FICO scoring model.
But until that time, most mortgage lenders continue to use credit-scoring models that are mandated Fannie-Mae and Freddie-Mac compliant. They do this because they "sell" their loans to these government-sponsored enterprises (commonly known as GSE's). These enterprises guarantee loans in the secondary market.
Both Fannie-Mae and Freddie-Mac require that an available or usable score is utilized during the underwriting process for loans. Most mortgage lenders currently receive their "usable" credit scores from the 3 major credit bureaus ... Experian, TransUnion, and Equifax. And as of this writing, all three (3) of the credit bureaus are still using an older FICO Scoring model, not the latest/new version(s).
With so many credit scoring models out there and being used, it's easy to understand why consumers get somewhat confused and maybe even a bit frustrated when trying to learn their credit scores. In today's world, a consumer can ... at the same time ... carry one credit score via a credit card company, have another score reported to them by an auto dealer, and still a third set of scores utilized by their mortgage lender when applying for a home loan.
Once again, this is the case because each entity is using a different scoring model. This is an issue and conversation often raised by my clients when they're applying for their mortgage. And while I agree it can all be a bit confusing, the advice I offer on this matter never waivers.
Especially for those hoping to secure a home loan in the near future, their focus needs to remain steadfast and on the credit scores I'll be using as their mortgage lender. They are the only ones that matter during the time of application and during the mortgage processing.
In order to determine what those important credit scores are, home buyers and those hoping to refinance need to get out ahead of the mortgage application process. Planning and preparation needs to be completed.
Hopeful buyers and applicants should always:
- Check their credit well in advance of application. (6 months to a year is recommended)
- Get a FREE credit report at: annualcreditreport.com (Free reports can be performed every four months, if staggering requests to the major credit bureaus)
- Thoroughly review their report for errors and correct them, should they appear
- Focus on reducing the ratio of debt held
- Reduce spending, when and where possible
- Pay all bills on time
- Don't apply for new debt
- Do NOT close old accounts out
- Hold a preliminary conversation with a Mortgage Lender
- Develop and maintain good credit practices
Benjamin Franklin once said, “By failing to prepare, you are preparing to fail.”
Ben was one smart man, especially as it pertains to mortgage application. Preparation is key to the success you'll find and the ease and fluidity with which you'll find it.
Plan and prepare well and it will not matter which scoring model is being used. You will successfully reach your financial goals ...
* Are you dreaming of buying or refinancing a home or Investment Property in New Lenox - Will County - Chicago - Chicagoland - IL/WI?
Contact me today! I'll put my 40 years of mortgage experience and expertise to work on your behalf.
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