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If you haven’t already heard, there’s been a growing discussion about Fair Isaac Corp., the company behind the FICO® credit scoring model, announcing upcoming changes to the way scores will be calculated.

The changes—collectively known as FICO® Score 10—were announced on January 23rd. Last year, Fair Isaac Corp. reported the national average credit score had climbed to an all-time high of 706.

 

However, with the new model, this average may soon change as it’s estimated roughly 110 million people will see a 20-point swing in their scores, for better or worse.

 

In other words, the way this impacts how scores will soon be calculated is an absolute game-changer, and the decisions your clients make today will have a huge influence on where their new score falls, in the very near future.

 
Speaking of changes to credit scores… 

FICO® Score 10 will make boosting a score by paying down credit card debt prior to loan application harder to achieve. This is because new scores could factor in your clients’ checking and savings account balances over two years (versus a couple months).

The same goes for looking at credit and spending trends. However, any potential dip in credit scores won’t be due to an existing mortgage, refinancing, or student loans.

Instead, it will depend on payment habits, which of course means it’s crucial clients continue to maintain a healthy payment history.

Once the changes take effect, those who have carried balances month-to-month (which again will be visible over a 24-month period) may be seen as a higher risk.

On the plus side of the FICO® 10 update, high balances over a short-term will not be penalized. For example, maybe you have a client who went on vacation and put a higher than normal amount on their credit cards for the month. With FICO®’s new changes, this sort of short-term increase in how much credit they’re using will not ding their overall credit score.