If you have a less than stellar credit score, a growing pile of debt, or are closer to maxing out your credit cards than paying them off, you could soon see a surprise in your FICO score.
Fair Isaac Corp., the company behind the closely-watched score, said on Thursday it would begin incorporating rising debt levels into its model going forward – one of a series of measures that , according to the company’s forecast, could lower the scores of around 40 million people, according to CNBC. Consumers with scores below 600, a history of delinquencies and other black marks on their credit reports are the most likely to experience declines, although some consumers may see their scores increase.
FICO changes its scoring model every few years to reflect changes in consumer behavior. The last time it happened, in 2014, the changes were widely seen as a boon to consumers who have traditionally struggled to secure mortgages and pay off existing loans.
But soaring consumer debt, the growing popularity of personal loans, and an economy that seems poised to slip into a recession raised uncertainty about the creditworthiness of US borrowers. According to a declaration of the society.
“Some lenders see there are issues on the horizon in terms of consumer performance…” said David Shellenberger, vice president of scores and predictive analytics at FICO. the wall street journal, who broke the news first. “We are definitely finding pockets of greater risk.”
The new system will be available to lenders through credit reporting agencies this summer, FICO said. In the meantime, here are some of the factors that could have a more negative impact on your score in 2020 than in previous years:
– If you have missed payments on loans, credit card bills and other types of debt, especially in the last 12 months
-If your debt balance has increased over the past two years
-If you have taken out a personal loan
-If you have a high “credit utilization rate”; the amount you borrowed against your credit limit