FICO Credit Score Changes in 2020 – They Keep Moving the Goal Line

Whether you’re building a new business or building your net worth, having a good credit score is critical to meeting your financial goals. What many consumers may not know is that your FICO score, developed by the company, Fair Isaac, periodically changes not just due to your spending habits. Fair Isaac changes the formula used to calculate your FICO score every few years and a new version will start to get traction in 2020. You may see lenders start to adopt the new model called FICO 10 Suite.

Many lenders have “credit score” embedded into their own financial models, so the rollout takes time, but it’s important to know about these changes coming so you’re not caught by surprise. Even if your auto dealer is an early adopter, they’re not going to tell you, “Hey, we’re using FICO 10” when you go to buy a new car in 2020.

Ironically, like most things in life, the goal line gets moved just as soon as you’re about to cross it. Since the 2007 housing market crash, most consumers have been steadily working their way out of debt, and credit scores have improved. One report from Experian pegs the average score at over 700 in 2019. So with so many consumers with high credit scores, lenders need a better way to differentiate borrowers who on the surface all seem like good investments. Hence, FICO’s new model will take into account things like personal loans which have become very popular over the past few years in helping people consolidate credit card debt. This will now be a separate category and could negatively impact your score if you have a personal loan and still have high credit card balances.

Ultimately, the best way to beat FICO and lenders at their own game is to eliminate all debt – starting with credit card and car loans. Build your emergency fund so you don’t have to rely on credit cards when things go south like a job loss or health issue. And most important, keep pushing to create additional streams of income.

Read more about the FICO 2020 Credit Score Changes.