The FICO credit score is set to change this year. Will it affect your score?

Credit scores are based on data collected by the three major credit bureaus: Equifax, TransUnion, and Experian. A score takes into account several factors, including the amounts you owe, payment history, and how long you’ve held credit. What is considered ‘good’ credit will fluctuate and vary by creditor or bank, but general guidelines are:

Exceptional Credit:  800+
Very Good Credit:  740-799
Good Credit:  670-739
Fair Credit:  580-669
Poor Credit:  579-

What is Changing?

The FICO score algortihm is going to be updated this year.  One of the highlighted changes is that the simple fact of carrying a student loan balance or mortgage should not significantly impact your score.  Of course, it is essential that you are paying those loans on time as they will focus primarily on your payment history.

Be careful with revolving credit like credit cards.  Payment should be made on time, and balances should be relatively low compared your available credit.  These behaviors will impact your score greatly.  Under the new model, the past 1-2 years of payment history will be considered, rather than a short snapshot at the time of application.  So it is important to maintain good credit habits and make timely payments.  If your level of debt is increasing, that will likely count against you.

Source: MyFICO


They predict FICO credit scores may change by about 20 points in either direction.  That doesn’t sound like a lot, but if you are on the cusp from one category to another, a slight improvement could help you save on your loan rate, and therefore your monthly payment.

What Should You Do?

If you are thinking about buying a home soon, pay extra attention to your credit behavior.  Talk to a lender to learn about things you can do to improve your score.  It may be helpful to pay down balances, and of course pay all your debts on time.  Reviewing your credit report can also help you identify if there are any issues or errors that need to be addressed. Many lenders will help you with that process to ensure you are ready for your purchase.  For most buyers, it is important you not open new credit lines too close to a purchase, though for a stark few, you may need to open some accounts to establish credit.  Because each case is individual and unique, it is crucial you speak with a trustworthy and qualified lender.

Contact one of our agents today to learn more about the homebuying process and trusted lenders.