The Fair Isaac Corporation, better known as FICO, is the oldest credit reporting agency. Credit rating agencies periodically update their credit scoring models to reflect improved analytics and new data. As ten years have passed since the great financial crisis of 2008-2009, some lenders are now examining and reassessing borrower risks before the next anticipated recession, which may be imminent as a result of the COVID-19 pandemic.
Despite some of the details changing, the core principles of maintaining an excellent credit score remain the same. A credit score acts as a proxy for an individual consumer’s financial stability and reliability. Consumers must proactively take positive steps to enhance, solidify, and protect them.
It is important to note that scoring ranges and algorithms vary by company so scores may also vary based on the data that’s used to calculate scores, and how these different scoring models operate. Lenders decide whether to use a particular company and score for different purposes.
New changes to FICO models indicate that late payments and rising debt levels may even more significantly affect credit scores. The CARES Act requires businesses to provide data to credit reporting companies to protect credit scores.
Although the exact formulas used to calculate credit scores are proprietary, the new FICO score is reported to give more weight to rising levels of debt, higher debt utilization, which is the ratio of the amount a consumer borrows relative to the amount of credit available, and late payments. Unsecured personal loans are also being reconsidered.
As a result, individuals who have been making timely payments, paying off debt, and using less of their credit line may see their credit scores increase. Other recent changes to credit scoring models in past years have helped new borrowers with limited credit histories and individuals with tarnished credit histories by considering timely rent, utility, cell phone, and cable payments as well as bank account balances.
Anyone experiencing financial duress may benefit from consulting with an experienced bankruptcy attorney for advice on how to protect their credit scores. Utah residents may obtain any necessary advice to help them evaluate their financial circumstances and determine their next course of action.
Talk to the Morrison Law Group about your Chapter 7 or Chapter 13 bankruptcy options. Call 801.456.9933 today to schedule a FREE consultation. We are Utah’s only statewide bankruptcy law firm and have locations in Ogden, Logan, Sandy, and St. George to serve the residents of the counties of Weber, Cache, Salt Lake, Utah, Morgan, Davis, Washington, and surrounding areas.
