A credit score plays an important role in our financial lives! After all, it defines our creditworthiness! Creditors use this score to evaluate the risk of lending money.
Having a good credit score means you can pay off your accumulated debts on time! So, the higher your credit score, the higher your chances of approval for a credit line!
In our country, one of the prominent credit scoring models is the FICO score which was first introduced in 1989 by the then Fair, Isaac, and Company.
In the FICO scoring model, a credit score ranging from about 670 to 739 is considered a good one!
But recently, Fair Isaac Corporation introduced a new scoring model, known as FICO 10. According to Joanne Gaskin, vice president of scores and analytics at FICO, about 40 million people might notice their credit scores increase by 20 points or more.
But another 40 million people might notice their scores slashed by 20 points or more. And about 110 million people might see their credit scores increase or decrease by less than 20 points!
And you know what? These people include retirees too! Yes, you heard it right! Here we are going to discuss the new FICO score 1O suite. And how it can affect the retirees of our country!
Why is FICO coming up with new credit score changes?
In 2017, all credit bureaus of our country implemented changes to eliminate civil judgment records. By 2018, all tax liens were eliminated too from the credit reports by the bureaus. Eventually, many people noticed a boost in their credit scores. This resulted in many people opting for loans that they couldn’t afford to pay off!
However, the new FICO score 10 suite focuses on rising debt levels due to the changes mentioned above.
We hope that you will be able to reduce your default payments and improve your financial behavior to maintain a decent credit score!
What are the new changes that FICO is going to implement?
Well, FICO is trying to provide the lenders or creditors a more accurate analysis of your credit risk based on trending data. For this, we have come up with a new FICO 10 Suite model.
It consists of the FICO 10 score and the FICO 10 T score. Like the previous versions, FICO 10 score will consider these 5 factors, i.e,
- Payment history
- Amounts owed
- Length of credit history
- Credit mix
- New credit lines
But FICO 10T is the first of its kind! It will contain the information of how you have managed your credit account for the past 2 years, like,
- Your outstanding balances
- Minimum payments required
- The amount you paid on your most recent credit card
It means, if you don’t have a history of paying off your outstanding balance amount in full each month, your credit score may drop.
Generally, creditors report an account delinquent when you miss payments for at least 30 days. And once delinquency is reported, it stays on your credit report for approximately 7 years! Eventually, your credit score drops!
But in the FICO score 10 suite, late payments are taken much more seriously than previous versions. So, being late on your payments can lead to a substantial drop in your credit score! That’s why always remember to make payments on time!
With a FICO score of 10 suites, opting for personal loans might reduce your credit score. Taking out a personal loan to consolidate debts is a common affair. It helps you to pay off your high-interest debts with a single loan. And that too at a reduced interest rate than that of your existing loans.
Well, that’s fine!
But let’s say, you are paying off your consolidation loan. At the same time, you are using credit cards to make new purchases. In short, you are building up new outstanding balances along with paying off a consolidation loan. In that case, your credit score will take a hit in this FICO score 10 suite!
So, if you have taken out a personal loan to consolidate your debts, make sure that you don’t fall prey to credit card debt again! It will be beneficial for your finances and credit score too!
Why is a credit score important in your retirement?
Often, people ask me “does retirement affect FICO score?”. Well, retirement doesn’t affect your FICO score. But yes, how you manage your credit lines after retirement affects your FICO score!
Many people think a credit score is not that important for retirees! But it’s completely wrong! A credit score is equally important for retirees too! Having a good credit score can help you to get:
- A lower interest rate of the mortgage
- A chance to refinance your mortgage if interest rates drop
- Comparatively lower interest rates for credit cards, auto loans, etc
- Lower insurance premiums
The bottom line is, your credit score remains an important factor in your retirement too! So, you need to improve your financial behavior by paying off your outstanding balances in full and always on time, taking out a personal loan wisely, etc.
By doing so, you can maintain a decent FICO score and relax during your golden years!