If you struggle to stay out of debt or make questionable decisions regarding loans, your credit score might be about to drop.
Changes in how the most commonly used credit score — the FICO score — is calculated mean three types of spending patterns soon could hurt your credit profile, The Wall Street Journal reports. They are:
- Racking up rising levels of debt
- Falling behind on loan payments
- Signing up for personal loans — at least for some consumers
FICO (Fair Isaac Corp.), the company that created the FICO score system that lenders use to gauge creditworthiness, says the shift in how borrowers are evaluated will impact all types of borrowers.
According to the WSJ:
“The changes will create a bigger gap between consumers deemed to be good and bad credit risks, the company says. Consumers with already-high FICO scores of about 680 or higher who continue to manage loans well will likely get a higher score than under previous FICO versions. Those with already-low scores below 600 who continue to miss payments or accumulate other black marks will experience bigger score declines than under previous models.”
The WSJ notes that the changes appear to be an about-face from policies in recent years on the part of FICO and credit-reporting companies that had made it easier for borrowers to lift their scores.
In addition to previously removing some negative material, such as civil judgments, from credit reports, FICO and other credit-scoring and credit-reporting entities had begun to include new data, such as bank account and utility payment histories, in an effort to make it easier for consumers to build a positive credit history.
The WSJ reports that this shift toward scoring borrowers more rigorously may be a result of lenders worrying that many debt-ridden U.S. consumers pose a bigger risk to lenders than the consumers’ current credit scores suggest.
Lenders may also have concerns about the future of the U.S. economy, which has been expanding for a decade and may be running out of steam, the WSJ reports.
Hoping to raise your own credit score quickly? Money Talks News founder Stacy Johnson has some thoughts about how to do so. Tap his wisdom by reading “What’s the Fastest Way to Increase My Credit Score?”
Do these changes to how credit scores are calculated worry you? Sound off in comments below or on our Facebook page.