Major FICO changes could be bad news for your credit score
Editor's Note
Editor's note: This post has been updated with new information.
The way FICO scores are calculated is changing pretty dramatically, and it could lower your credit score.
Fair Isaac Corporation — more commonly known as FICO — announced it will score consumers more harshly based on their debt levels and loan payments starting this summer. The purpose of this change is for FICO to be able to more accurately calculate the risk of a consumer to lenders.
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While the changes are set to take place during summer 2020, consumers likely won't see changes, if any, to their credit score until summer 2021 or later. That's because the new reporting version is released in phases. This summer, the credit bureaus will adopt the new version as a part of phase two, but it could take a year or longer before phase three — when lenders adopt the change — is initiated.
What is the new scoring system?
FICO 10 T — the new reporting version — will place a greater weight on missed payments, meaning that consumers who have fallen behind on repayments will likely see a drop in their credit score. On the plus side, consumers could see a credit score increase if a delinquency is over a year old.
The Wall Street Journal reported that "FICO updates its scoring model every few years to reflect changes in consumer borrowing behavior and performance. When it last announced such changes, in 2014, they were viewed as likely to help boost consumers’ credit scores."
Related reading: How to improve your credit score
FICO will reportedly flag certain customers who sign up for personal loans. That could ding you if you transfer credit card balances and then rack up more credit card debt. They'll also continue a recent industry trend of including information from bank account balances and utility payments.
Related reading: 4 incorrect assumptions about your credit score
In the fourth quarter of 2019, the Federal Reserve reported that that U.S. consumers had accumulated $930 billion in debt. This may help explain why FICO made adjustments to its scoring model, although the five factors it considers will remain the same.
"Unlike previous FICO scores, 10 T will assess how consumers’ debt levels have changed during the past two or so years. FICO scores so far have reflected consumers’ balances during roughly the most recent month tracked. This change will place more weight on rising debt levels. Consumers who previously paid their credit-card bills in full but shift to carrying growing balances for several months will likely end up with a lower score," reported AnnaMaria Andriotis of The Wall Street Journal.
That said, not all lenders will adopt the new scoring systems.
What does this mean for you?
If you have and continue to follow the first commandment of travel rewards cards — thou shalt pay thy balance in full — then you shouldn't have too much to worry about.
Related reading: 5 ways to improve your credit score
The new version of FICO will most notably affect borrowers who have been carrying balances over the past 24 months. FICO estimates that roughly 110 million consumers will see a change to their credit score. Of those, approximately 40 million consumers should see an upward shift over 20 points, while another 40 million will see a shift downward.
However, given the current economic situation due to the coronavirus pandemic, you may be carrying more balances than you had prior.
If you find yourself in this situation, you can call your lender or credit bureau and ask that a "natural disaster code" be applied to your credit report. This is by no means a cure-all solution — nor will it protect your credit score — but it will protect your VantageScore (the complimentary credit score you can see through programs such as Chase's Credit Journey) from any delinquent reporting being added to your account.
Related reading: 5 ways the global recession is affecting credit cards and banks — and the upside for some cardholders
In the meantime, FICO is encouraging credit holders to practice credit vigilance. This is something that you should always do, but here's your reminder on how important it is.
Bottom line
If you've been a responsible borrower, then this new model will likely improve your credit score. However, if you've been carrying a balance, it's time to bring your bills up to date.
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| 4X | Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 4X | Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year. |
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You may be eligible for as high as 100,000 Membership Rewards® Points after spending $6,000 in eligible purchases on your new Card in your first 6 months of Membership. Welcome offers vary and you may not be eligible for an offer.As High As 100,000 points. Find Out Your Offer.Annual Fee
$325Recommended Credit
Credit ranges are a variation of FICO® Score 8, one of many types of credit scores lenders may use when considering your credit card application.Excellent to Good
Why We Chose It
There’s a lot to love about the Amex Gold. It’s a fan favorite thanks to its fantastic bonus-earning rates at restaurants worldwide and at U.S. supermarkets. If you’re hitting the skies soon, you’ll also earn bonus Membership Rewards points on travel. Paired with up to $120 in Uber Cash annually (for U.S. Uber rides or Uber Eats orders, card must be added to Uber app and you can redeem with any Amex card), up to $120 in annual dining statement credits to be used with eligible partners, an up to $84 Dunkin’ credit each year at U.S. Dunkin Donuts and an up to $100 Resy credit annually, there’s no reason that foodies shouldn’t add the Amex Gold to their wallet. These benefits alone are worth more than $400, which offsets the $325 annual fee on the Amex Gold card. Enrollment is required for select benefits. (Partner offer)Pros
- 4 points per dollar spent on dining at restaurants worldwide and U.S. supermarkets (on the first $50,000 in purchases per calendar year; then 1 point per dollar spent thereafter and $25,000 in purchases per calendar year; then 1 point per dollar spent thereafter, respectively)
- 3 points per dollar spent on flights booked directly with the airline or with amextravel.com
- Packed with credits foodies will enjoy
- Solid welcome bonus
Cons
- Not as useful for those living outside the U.S.
- Some may have trouble using Uber and other dining credits
- You may be eligible for as high as 100,000 Membership Rewards® Points after you spend $6,000 in eligible purchases on your new Card in your first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply to know if you’re approved and find out your exact welcome offer amount – all with no credit score impact. If you’re approved and choose to accept the Card, your score may be impacted.
- Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com.
- Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com.
- Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases.
- $120 Uber Cash on Gold: Add your Gold Card to your Uber account and get $10 in Uber Cash each month to use on orders and rides in the U.S. when you select an American Express Card for your transaction. That’s up to $120 Uber Cash annually. Plus, after using your Uber Cash, use your Card to earn 4X Membership Rewards® points for Uber Eats purchases made with restaurants or U.S. supermarkets. Point caps and terms apply.
- $84 Dunkin' Credit: With the $84 Dunkin' Credit, you can earn up to $7 in monthly statement credits after you enroll and pay with the American Express® Gold Card at U.S. Dunkin' locations. Enrollment is required to receive this benefit.
- $100 Resy Credit: Get up to $100 in statement credits each calendar year after you pay with the American Express® Gold Card to dine at U.S. Resy restaurants or make other eligible Resy purchases. That's up to $50 in statement credits semi-annually. Enrollment required.
- $120 Dining Credit: Satisfy your cravings, sweet or savory, with the $120 Dining Credit. Earn up to $10 in statement credits monthly when you pay with the American Express® Gold Card at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, and Five Guys. Enrollment required.
- Explore over 1,000 upscale hotels worldwide with The Hotel Collection and receive a $100 credit towards eligible charges* with every booking of two nights or more through AmexTravel.com. *Eligible charges vary by property.
- No Foreign Transaction Fees.
- Annual Fee is $325.
- Terms Apply.