(DailyProsper.com) – Have you been working diligently to crawl out of credit hell? If you happen to notice your credit dip a little bit this year, try not to panic. There are some changes on the horizon that may be to blame. Here’s the scoop.
FICO Changes And You
Fair Isaac Corporation (FICO), the organization responsible for moderating the entire credit industry, is making a few changes. They will now count more than just a few late payments from the past. For example, FICO might factor in the type of debt you have, your overall debt load and even how you’ve handled it.
If you’re concerned, don’t panic just yet. In most cases, people with good credit won’t be affected very much. If your credit is…well, a little lacking…here’s what you can do to make the blow a little less impactful.
Looking Back 12 Months
It may seem cringeworthy that all the work, sweat and sacrifices you’ve put into rebuilding your credit score can be taken down several notches just like that. But one thing that lenders will be taking a closer look at moving forward is your credit history in the past year. This includes:
- Late payments.
- Closed credit card accounts.
- Carrying large credit card balances.
- Recent judgments or defaults.
While these items have always been used to determine your credit score, they’ll be more closely scrutinized. This could trigger a significant drop in your score in 2020.
Some Loans May Put You in a High-Risk Category
Have you had to take out a personal loan or two to make ends meet? They can be a good solution if you need money fast, but they can also come at a cost. Unless they’re from payday lenders, these loans will show up on your credit report.
Because some have high annual percentage rates and fees, it can be easy to miss a payment. This can ding your credit score significantly. Starting this year, FICO T10 is penalizing borrowers for taking out these loans over the past 24 months and carrying high balances for long periods of time.
Know Your Debt-To-Income Ratio
You used to be able to count on your score staying the same or going up as long as you made all your payments on time. But now, Fair Issac Corporation takes a closer look at your overall debt picture. This means that if you’re over-extended on your credit limits and carry a lot of debt compared to your income, your debt-to-income ratio will be higher. This can drop your score several points.
What Can You Do Now
A “very good” FICO number is anywhere between 740 and 799. The higher, the better. There are some actions you can take right now to preserve or improve your credit score:
- Pay off all debt as soon as possible. Debt.org has some good resources if you’re struggling to make minimum payments and tackle high-balance cards.
- Make all loan payments on time. This helps keep your credit score up.
- Don’t take out additional loans. Accumulating new debt can lower your credit score.
- Avoid extending existing credit lines. This can reflect negatively on your credit report.
Now is the time to act when it comes to protecting your credit. This will help you avoid sudden surprises the next time you go to apply for a loan or check your score.
Your credit is like gold. It’s highly valuable and worth every penny. It can mean the difference between paying a low amount on your next loan or having a ridiculously high payment. Caring for your credit now can help you simplify your future and solidify the foundation you’ve been working so hard to build.
~Here’s to Your Success!
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