Protecting Your Credit During the Coronavirus Outbreak – New FICO 10 Scoring in 2020
As the number of coronavirus cases spreads, it is also having a negative impact on the financial health of the economy at large and the economic well-being of individuals across the United States. The unusual nature of this pandemic has impacted some people’s ability to pay bills on time. However, there are some financial habits that people have actively changed.
Paying down revolving debt with less spending, some have decided to use the extra dollars to pay down debt. This not only helps them from a credit perspective, but as mentioned above, it’s a way for them to use their discretionary money for more productive purposes.
Holding on to cash You might’ve heard the term “cash is king.” In these unsettled times, some people are holding onto their cash just in case. Will unemployment hit them? Will something in their Home need repair or replacement? Will their semi-truck or trucks break down? Not knowing what the future holds, having cash on hand is helping many people feel comfortable.
As of January 23rd 2020 New FICO 10 Scoring is available for lenders to use in making their lending decisions. The last time FICO scoring changed was in 2014. What does that mean to you? The new version of credit scoring models tend to treat information the same. FICO 10 includes several meaningful differences that are important for you to understand. Credit scores play a large part in determining interest rate and terms when applying for a loan.
FICO 10 scoring – Top 5 credit score factors
- Payment History – Installment credit
- Credit utilization – Revolving credit
- Credit history length
- Credit mix
- New credit
How does having different accounts affect my Credit Score?
Credit mix- or the diversity of your credit accounts – is one of the most common factors used to calculate your credit scores. It is also one of the most overlooked by Consumers. Maintaining different types of credit accounts, such as a mortgage, personal loans, business loans and credit cards, shows lenders you can manage different types of debt at the same time. It also helps them get a clearer image of your finances and ability to pay back debt.
FICO 10T Trending Data – Installment Debt, Revolving Debt Allows a credit scoring model to determine whether you are reducing, maintaining or increasing your balances over time, developing FICO 10 & 10T vs. a single score.
What Can Hurt Your Credit Score
- Missing payments
- Using too much available credit
- Applying for a lot of credit in a short time.
- Defaulting on accounts. The types of negative account information that can show up on your credit report include foreclosure, bankruptcy, repossession, charge-off’s, settled accounts. Each of these can severely hurt your credit for years, even up to a decade.
Late payments are more pronounced than with prior FICO score versions. Setting up autopay to send payments on the due date will go a long way toward keeping your scores in good standing. Staying current on your obligations is a great way to build & maintain solid credit scores regardless of the scoring model.
Credit Utilization CC debt will have a big impact with FICO 10. You should try and maintain a low utilization percentage. Utilization should be at 50% or lower. If you leave your unused or infrequently used credit cards open rather than closing them, your scores continue to benefit from the unused credit limit.
Personal Loans also known as signature loans might lower your FICO 10 score. These unsecured installment loans are commonly used to pay off debt. For instance debt consolidation paying off higher-interest loans.
Is this good or bad? Bad if you are still paying on the consolidated loan and charge new debt on the cards you consolidated from. All of this will be tracked under the New FICO 10 scoring model.
What if I already have a good score? You will benefit as well. Your score will go up.
What if I do not currently have a score ? You will still not have a score. You are not meeting the minimum data standards.
Can service accounts impact my credit score? Service accounts, such as utility and phone bills, are not automatically included in your credit file. Historically, the only way a utility account could impact a credit score was if you didn’t make payments and the account was referred to a collection agency. But this is changing. A revolutionary new product called Experian BOOST now allows users to get credit for on-time payments made on utility and telecom accounts. Experian Boost works instantly, allowing users with eligible payment history to see their FICO Score increase in a matter of minutes. Currently, it is the only way you can get credit for your utility and telecom payments. Through the new platform, users can connect their bank accounts to identify utility and phone bills. After the user verifies the data and confirms they want it added to their credit file, they will receive an updated FICO Score instantly. Late utility and telecom payments do not affect your BOOST score – but remember, if your account goes to collections due to nonpayment, that will stay on your credit report for seven years.
How to Improve Your Credit Score
Get a free copy of your credit report and score so you can understand what is in your credit file. Next, focus on what is bringing your score down and work toward improving these areas.
- Pay your bills on time
- Pay down debt
- Make outstanding payments – get current
- Dispute inaccurate information on your report
- Limit new credit requests
What to Do if You Do Not Have a Credit Score
- Get a secured credit card
- Become an authorized user on someone’s credit card. (i.e. spouse or family member)
Has the Coronavirus Affected Our Financial Habits? YES!
The global pandemic has changed a lot of aspects of life. Although we could be going through similar issues because of the coronavirus, we’re all in different financial situations. For most of us, our routines have changed so much; it feels as though we’re living a completely different life from only a few months ago. The same holds for the way many of us are treating our money which is why it is important for us to protect our credit during the coronavirus outbreak.
If you have any credit questions or are interested in financing with JX Financial or Alltrux Capital, please reach out to our Finance Experts. Your Partner for the Long Haul!
