February is all about relationships. Maybe you’re thinking about your crush and how you can get them to be your valentine. Maybe you’ve been through a breakup and never want to think about relationships again.
Despite the status of your love life, there’s one relationship that has always remained consistent. I’m talking, of course, about the relationship we have with our credit report. Just like any relationship, the more you put into it the more it will work for you. It’s also necessary to be aware of the changes over time and adapt to those changes so you can work on your relationship with your credit report.
FICO 10 Credit-Scoring Update
FICO just released their newest scoring model, the FICO 10 in an effort to better assess the risk of lending to consumers. This new scoring model will focus more on trending data, causing low credit scores to be lower and higher credit scores to increase. With FICO 9, as long as your credit utilization was below 30%, you were in the clear. Now with the trending data, your score will be determined on your credit utilization ratio over time. If you tend to have a high ratio, then you’ll be scored as a riskier consumer. So don’t just work on bringing your utilization down, but keep it down consistently (i.e. 24 months.+). FICO will also flag consumers who take out personal unsecured loans, as they are riskier than secured installment loans, such as a car loan or a mortgage.
It may be some time before consumers see the effects of these changes to the new scoring model. Different companies use different models, either different FICO models or a different model altogether, such as the VantageScore scoring model. Regardless the same habits will help to build a healthy relationship with your credit report: always making payments on time and keeping your utilization ratio down.
For info on how you can keep paying down debt with lower interest rates/payments, check out the Debt Management Program.