Your credit score will likely be good, despite some differences between these models. Similarly, bad scores will remain bad. Each credit scoring model uses different methods to calculate your score. But they all share the same goal: to predict the risk to a consumer's credit. This means your score will reflect the risk.
New model for credit scoring
By 2020, all three credit agencies will have access the FICO 10 credit scoring system. It is expected the model will improve the credit scores in 40 million people and reduce scores in 110 million others. The trended data is used to predict the likelihood for 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.
FICO10 uses a multidimensional approach in credit scoring. It includes trends data on revolving amounts, minimum payment requirements, amount paid toward dues. The combination of these data points allows the new FICO 10 model to identify consumers who pay off their accounts on time. This method reduces the impact from a single event. This means that one charge for vacation expenses will not have a significant impact on your credit score. However, a series or late payments and high interest debt will have a greater impact.
Modifications to existing models
New FICO 10 credit score models have made a variety of improvements to the credit scoring process. New algorithms and data were used to calculate credit scores. It is estimated that nearly 40 million consumers will see their scores increase by an average of 20 points. These changes are designed to reduce credit scores disparities among consumers with different credit histories.
One change in the scoring model is the addition of trended data, which shows credit card or debt balances over the last 24 months. This information rewards responsible use and penalizes those who are behind in their payments. This information penalizes individuals with multiple debts, or high credit utilization.
Non-traditional credit has an impact
FICO T T is a new scoring algorithm that uses more recent data from accounts than FICO Basic. This data can help predict a borrower’s credit risks more accurately than the basic FICO10 score. The basic FICO score looks at only one snapshot of a consumer’s credit report. For the credit utilization section of the score, trend data is particularly useful. Credit scores were based on the payment history for the past seven to ten year. This means that a borrower with a higher balance will have a lower credit score.
The new model takes into account the usage rate of all credit accounts and averages out the peaks and valleys. This means that even a 20-point drop in one credit account can have a huge impact on the credit scores of millions. Luckily, for renters who don't own their own home, they can rely on the landlord's credit data to determine whether or not they can borrow money.
UltraFICO(tm), score changes
Fair Isaac Corporation developed UltraFICO, a credit-scoring system. Consumers with poor credit histories and credit problems are particularly affected by the score. Consumers with poor credit histories or recent financial difficulties will see their scores rise by 20 points under the new scoring system.
The new scoring system is based on more data than the traditional FICO credit score. It also uses cash flow data from consumer bank accounts. These data may not provide a prediction of a consumer’s creditworthiness but UltraFICO is meant to increase credit accessibility for all.