Don’t be surprised if the FICO scores of some of your clients change this summer.
That’s when the Fair Isaac Corp., creator of the FICO score — an acronym of its original name — will introduce a new scoring system that could penalize consumers with rising debt levels.
The new system, called FICO Score 10T, looks back two years or more at a consumer’s debt levels rather than the most recent month’s data, which is the current methodology for FICO.
Consumers with high FICO scores — 680 or higher — could conceivably get a boost in their credit scores once the new system takes effect so long as they continue to manage their finances well. But those with low scores — below 600 — could see their scores decline, according to a report in The Wall Street Journal.
In its news release, FICO, which Fair Isaac calls itself, says the new system enhances the “predictive power” of credit score ratings, which can help reduce the number of defaults in lenders’ portfolios. Comparing FICO Score 10 to FICO Score 9, the default rate on newly originated mortgages could fall by 17% and on new bank cards and new auto loans by 10% and 9%, respectively, according to FICO.