FICO announced Thursday its latest version of the FICO score, a three-digit number that assesses a person’s credit risk
. The new scoring model will take consumers’ debt levels into account and will more closely track personal loans.
Previous scoring models took snapshots of a person’s payment history. The new model will take a historical view of payments over time and can process much more information, including account balances for the previous two years, aiming to give lenders more insight into how individuals are managing their credit, FICO said.
About 80 million people will see a shift of 20 points or more, according to a statement from Dave Shellenberger, vice president of product management at FICO. Of those, about half will see scores go up, while the other half will see their scores drop.
Those who have a high amount of credit card debt relative to their overall credit, or who have recently missed payments, could see a more significant drop.
But people who make on-time payments and don’t carry high balances will likely see a slight increase in their score, Shellenberger said.
With a longer view of payments, consumers that pay their credit cards off monthly won’t be penalized as much for one-time large purchases and occasional high balances. But those who consistently keep a balance will see a drop in their credit score. Paying off credit cards monthly will always result in a better score.
FICO estimates that an additional 110 million consumers will see only a modest change to score, if at all, he said.
“The bad news is that those who were already struggling with debt will be hit more drastically by the recent FICO changes,” said Sefa Mawuli, a wealth adviser at Citrine Capital.