Sometime in this next year, a new shift in measuring a consumer’s credit score will mark the biggest change the FICO model has seen in decades.
So what do you need to know about this change? Will this be positive, or negative to you? Well, let’s find out.
First, the biggest change to the scoring model is that it will now include your banking history - as in your checking and savings. If you simply don’t have overdrafts on your account in the past 3 months, it should have a positive impact on your score. If you keep a balance of $400 or above, that will also have a positive impact. Some credit experts have noted that this shift could end up having a negative impact on some consumers who have shown a good history of managing their money, but might not have a lot of it.
Additionally, the scoring metric will take information from your bank account to include on-time bill payments made.
Overall, this new scoring model should be a net positive for a lot of people - to the tune of 79 million consumers with poor credit histories and 53 million who have no credit score at all. More data points, logically, should produce better loans. These data points will help determine credit patterns of those who either need a second chance, or are either too young to have had credit experience or haven’t had opportunities in the past. Millennials, entrepreneurs, self-employed, first time car buyers, immigrants - should all see better and more lending opportunities available to them.
You might assume that when this new model is introduced, that every bank will use it as a standard for measuring a customer’s creditworthiness. Unfortunately, that isn’t the case. A common misconception is that there is one credit measuring system that TransUnion uses, or Experian uses. What many people don’t realize is that there are multiple versions of credit assessments from each bureau and it is up to each lender which they use. That’s why you can check your TransUnion score at one dealership and have it be a 720, then another checks it and it’s a 680. They simply used a different version of TransUnion, not because you had an additional inquiry. (That’s an old-wives’ tale dealerships tell you so you don’t go to another store)
So how do you know what banks will use this new FICO score and which use various other versions - and how do you know which version will give you the best interest rate? Well - it can be very difficult because it’s often information that bank managers aren’t even aware of. Companies such as PayLow Rate actually allow for a multitude of lenders who use different bureau versions to bid on your auto loan (Even your current loan you’ve already been paying on!) all in one stop and one application. This allows each specific customer to match with the specific bank that is best suitable for them with little hassle.