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FICO model to change, your score might rise or fall depending on your current situation

The answer wasn't a simple "up or down."

EAGAN, Minn. — The folks at FICO are planning to roll out a new model. Like many things, this change may be good for some and bad for others.

"This one could impact consumers depending on how they are trending," Affinity Plus Federal Credit Union's Eagan branch manager Nate Altendahl said. He explained it won't have just one sweeping impact.

"If you are trending upward, meaning you're paying your payments on time, limiting the amount of debt you are taking out, your score is going to go up," Altendahl said. "If you're trending downward and you are taking on more debt, you might see a decrease in your score."

This is because the new FICO 10 model will have harsher penalties for late payments and will now look at a longer range of time to determine your score.

"If you are trending upwards, continue to do that," Altendahl said. "If you are trending downward, [ask yourself] what are some ways you can fix that? The past is going to be the past."

This meaning, if you took out a personal loan to pay off your high-interest credit card debt, FICO could take that into consideration too when it comes to your score. Especially if you took out a loan just so you can use your credit card even more, that could hurt your score.

Alternatively, Altendahl said taking out a loan to pay off the debt to close that line of credit for good may be helpful in the long-run.

"Closing them down and taking out a personal loan, seeing your balance go down is going to help your score go up," he said, referring to this as the debt consolidation method. "You might see an initial drop in your credit score but over time you will see your score go up."

When asked if it's better to completely avoid credit cards, Altendahl disagreed. 

"I think that everyone should have a credit card but they have to have the knowledge of how to use a credit card," he said. "A lot of consumers don't know how credit cards work and affect your credit score. You have a balance on your credit card and a limit on your credit card. You want to keep that below 30 percent, ideally [below] 10 percent would be great and pay it off every month."

So if you're drowning in debt and you already have a score lower than about 580, the model change might affect you the most. However, Altendahl suggested taking a more proactive approach to your finances if you find yourself in that situation.

"Take a look at what your credit report looks at right now," he said. "Look at it and say what's out there, what is reporting and what isn't. Clean that up as fast as you can and stay educated. Know what's on there and how it affects your score. If this does change, you're aware of how you can make a change now. This way you're prepared, you're ahead of the game."

FICO is the umbrella agency that encompasses the three credit reporting companies, Experian, Equifax and TransUnion. According to the Federal Trade Commission, you are entitled to one free credit report from each agency every year. So it is important to take advantage of those reports to keep track of what information is being taken into account.

FICO did say they are rolling this model out in the Summer of 2020 but Altendahl said not all lenders will adopt this model, and that it is optional for them.

As a borrower, he explained that there won't be any way for you to find out which lender uses what model.

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