There are some differences in the two models but your credit score is likely to remain high. Bad credit scores will not change. Each credit scoring model uses different methods to calculate your score. All of them have the same goal, predicting credit risk. This will affect your credit score.
New model for credit scoring
By 2020, all three credit agencies will have access the FICO 10 credit scoring system. It is expected to increase credit scores of 40,000,000 consumers while lowering scores of another 110 million. It uses trended data for predicting the probability of default. A consumer with a history of good payments and a low amount of debt will generally score higher on FICO than one with a high level.
The new FICO 10 scoring model uses a multi-dimensional approach to credit scoring. It also includes trend data about revolving accounts, minimum payments requirements and amount paid towards balances due. Combining these data points allows FICO 10 to identify consumers that pay off their accounts on a timely basis. This approach reduces the impact on a 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.
Modifications to models previously used
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. An average increase of 20 points in scores for consumers is expected to affect nearly 40,000,000 people. 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 card use, while penalizing those who are falling behind on their payments. It penalizes those with multiple debts and high credit utilization.
Non-traditional credit: Impact
FICO10 T uses data from more accounts that FICO10 Basic to calculate the new scoring algorithm. This data can help predict a borrower’s credit risks more accurately than the basic FICO10 score. A basic FICO score is based on a snapshot of the consumer's credit report. The credit utilization part of the score is particularly helpful because it uses trending data. Credit scores were based on the payment history for the past seven to ten year. A rising balance can hurt a borrower’s credit score.
New model takes into consideration the usage rate of all credit cards and averages the peaks, valleys. This means that millions of people can suffer from a 20% drop in their credit score due to a single account. Renters without a home can use the credit information of their landlord to see if they are eligible for loans.
UltraFICO(tm), Score Changes
UltraFICO is a credit scoring system created by Fair Isaac Corporation. The score is particularly relevant to consumers who have had credit problems or have limited credit history. For consumers with recent financial distress and limited credit history, the new scoring system will increase scores by more 20 points.
This new scoring system takes into account more data than traditional FICO credit scores. It also incorporates cash flow data from the consumer's bank accounts. These data may not provide a prediction of a consumer’s creditworthiness but UltraFICO is meant to increase credit accessibility for all.