Financial Literacy Month may be over, but here at HOPE BSG we want to ensure our clients receive crucial financial information all year round! As you read in our previous newsletter, we broke down what a personal credit score is, how it is calculated, and how you can keep YOURS in good shape. But did you know that FICO (Fair Isaac Corporation) frequently changes their credit score model? This means that the way your credit score is calculated or evaluated by lenders is subject to change. For the most part, the basic criteria stays the same, but being up to date on these changes can help you stay ahead of the curve AND help you know what the lenders will be looking for!

What is FICO 10?

FICO is the most common credit scoring model in the US, and has been used since 1965 to determine consumer credit risk for lenders and creditors. Most people probably don't realize that FICO updates it's scoring system every few years or so - and in 2021 they quietly did a major update, called FICO 10. According to FICO representatives, these updates could impact over 40 million people; but don't get too scared yet, even though FICO 10 has been enacted, most lenders are still using FICO 8 standards (and FICO 9 was released in 2016!). You still need to be prepared for the changes, so here's what you need to know: late payments, high balances (even if you pay them off), and personal loans are going to have a bigger (mostly negative) impact on your score! Here are some tips to keep you ahead of the curve:

1. Always pay on time - the new FICO standards are going to put much more weight on your late payments over the last 24 months than previous models.
2. Keep utilization down - ask for credit line increases to keep your limits high, and avoid maxing out your cards - even if you're going to pay them off. New standards will look at your 24 month spending history.
3. Be mindful of your consolidation loans - your credit score now could suffer if you start carrying monthly balances on your credit cards after paying them off in a personal loan.
4. Keep your old accounts OPEN - credit age will benefit you as more lenders start looking at the new FICO 10 standards.