Although there are differences between the models, credit scores will likely stay high. As with bad credit scores, they will continue to be bad. Each credit scoring model uses different methods to calculate your score. All of them have the same goal, predicting credit risk. That means that your score will reflect this risk.
New model for credit scoring
The new FICO 10 credit scoring model will be available to all three credit reporting agencies by the end of 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. In general, customers with a great payment history with a low balance will score higher than those with a high amount.
FICO 10, the new scoring model, uses a multidimensional approach to credit scoring. It provides trend data on revolving and minimum payment requirements as well as the amount paid towards due balances. The combination of these data points allows the new FICO 10 model to identify consumers who pay off their accounts on time. This approach also reduces impact of one single event. The result is that a single expense to pay for vacations won't have a major impact on your credit score. But, late payments and high-interest loans will.
Model changes
New FICO 10 credit score models have made a variety of improvements to the credit scoring process. The new model takes into account new data and algorithms to calculate credit scores. The average score increase for almost 40 million consumers will be 20 points. The changes are aimed at reducing disparities between the scores of consumers who have different credit histories.
Trended data is an addition to the scoring system. It shows the credit card or loan balances over the past 24 month. This information rewards responsible credit card usage, but penalizes those who fall behind on their payments. It penalizes those with multiple debts and high credit utilization.
Impact on non-traditional credits
FICO10 T uses data from more accounts that FICO10 Basic to calculate the new scoring algorithm. This data helps predict a borrower's credit risk more accurately than the basic FICO 10 score. A basic FICO score is based on a snapshot of the consumer's credit report. Trend data is particularly useful for the credit utilization segment of the score. Credit scores had previously looked at payment history over the past seven-ten years. The rising balance will affect a borrower’s score.
The new model averages the peaks and valleys of credit accounts, taking into account their usage rates. This means that a 20-point decrease in one account can impact the credit score of millions of consumers. Renters who rent their home are able to use the landlord's credit report to determine if they're eligible for money.
Changes to UltraFICO(tm) score
Fair Isaac Corporation's credit scoring system UltraFICO was created. Consumers with poor credit histories and credit problems are particularly affected by the score. 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 draws on more data then the FICO credit score. It also includes cash flow data derived from 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.