Select’s editorial team works independently to review financial products and write articles that our readers will find useful. We may receive a commission when you click on links to products from our affiliate partners.
If you wear credit card debt, you might soon see a drop in your credit score.
Fair Isaac Corp., creator of the FICO score, ad today, January 23, the new FICO 10 model, which is expected to fluctuate scores by around 20 points. This change comes in the wake of the average FICO score hitting a record high of 703 earlier this month.
The new credit scoring model will be calculated to incorporate consumer account balances for the past 24+ months, which is bad news for anyone with month-to-month balances. These changes are expected to widen the gap between people good credit (scores 670 to 739) and those with bad credit (scores less than 580).
“Consumers with recent lag or high usage are likely to see a downward slide, and depending on the severity and recency of the delinquency this could be significant,” says Dave Shellenberger, vice president of management products at FICO.
FICO estimates that around 110 million consumers will see their credit scores change once the new model goes into effect later this summer. About 40 million consumers will see an upward change of more than 20 points and another 40 million will see a downward change.
“It’s not hostile to consumers,” John Ulzheimer, a credit scoring and credit scoring expert, told CNBC. “People with good credit will score higher with newer models. People who are at high risk will get lower scores. This is always what you see in a newly developed model when you compare score distributions to older models. ”
Take action: Check your credit score for free
CNBC Selection offers some tips on how to increase your credit score and achieve good credit in anticipation of the new FICO 10 scoring model.
Make payments on time
Payment history is the most important factor in your credit score, so it’s essential to always pay on time. Set up automatic payment or reminders to ensure timely payments.
Pay your bill in full
While you should always do at least your minimum payment, we recommend that you pay your bill in full each month to reduce your usage rate (your total credit card balance divided by your total available credit). In general, the lower your usage, the better your credit score.
Don’t open too many accounts at once
Every time you apply for credit, whether it’s a credit card or a loan, and it doesn’t matter if you’re denied or approved, a request appears on your credit report. This temporarily lowers your credit rating by about five points, although it will rebound in a few months. Try to limit apps as needed and shop with it prequalification tools that don’t hurt your credit score.
Make a balance transfer
If you are in debt, consider a balance transfer credit card which offers up to 18 months of interest-free financing, such as Citi Simplicity® Card (after 14.74% to 24.74% variable APR). If you make a clear payment plan before making the transfer, you can pay off the balance faster and cheaper than leaving the debt on a high interest credit card. Your payments will go entirely to your debt versus debt plus interest.
Information on the Citi Simplicity® card was independently collected by CNBC and was not reviewed or provided by the card issuer prior to publication.
Editorial note: The opinions, analyzes, criticisms or recommendations expressed in this article are those of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.