There are some differences in the two models but your credit score is likely to remain high. Bad credit scores will not change. Each credit scoring model has a different way of calculating your score. They all aim to predict credit risk. This means that you will see the impact on your score.
New model for credit scoring
All three credit reporting agencies will have access to the new FICO10 credit scoring model by 2020. It is expected to improve the credit scores of 40 million consumers, while lowering the scores of an additional 110 million consumers. The system uses trended data in order to predict default risk. 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.
The new FICO 10 scoring model uses a multi-dimensional approach to 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 approach also reduces impact of one single event. This means that a single charge to pay for a vacation will not significantly impact your score, while a series of late payments and high-interest debt will have a higher impact.
Modifications to existing models
A number of new changes have been made to credit scoring systems since the recent release of FICO 10, the credit score model. The new model takes into account new data and algorithms to calculate credit scores. An average increase of 20 points in scores for consumers is expected to affect nearly 40,000,000 people. These changes are intended to reduce discrepancies between scores of consumers with differing credit histories.
One modification to the scoring model is the inclusion of trended information, which displays credit card or debt balances in the last 24 months. This information rewards responsible usage of credit cards while penalizing those who are late on payments. It penalizes those with multiple debts and high credit utilization.
Impact on non-traditional credit
FICO10 T uses data from more accounts that FICO10 Basic to calculate the new scoring algorithm. This data allows for a better prediction of borrowers' credit risk than the basic FICO score 10. A basic FICO score takes only a snapshot from a consumer's credit reports at one time. Trended data is especially useful for the credit utilization portion of the score. Credit scores had previously looked at payment history over the past seven-ten years. The rising balance will affect a borrower’s score.
The new model averages the peaks and valleys of credit accounts, taking into account their usage rates. This means that a 20-point decrease in one account can impact the credit score of millions of consumers. For renters who do not own a home, their landlord's credit history can be used to determine if they can borrow money.
UltraFICO(tm), Score Changes
Fair Isaac Corporation created UltraFICO, a credit scoring system. This score is especially useful for consumers with bad credit ratings or limited credit histories. Scores for those with low credit scores and financial distress are likely to increase by more than 20% under the new scoring system.
The new scoring system is based on more data than the traditional FICO credit score. It also includes cash flow data derived from bank accounts. Although those data are not necessarily indicative of a consumer’s creditworthiness and creditworthiness in general, UltraFICO aims to increase credit availability for all.