Understanding FICO 10 and FICO 10 T
If you’re a mortgage or real estate professional, you are probably used to hearing news about shiny new credit scoring models from FICO just to be let down by the fact that none of them are approved for mortgage lending. We all got excited for FICO 9 and the impact it would have on medical collections. Then FICO XD and FICO Ultra came out with new opportunities to score credit invisibles. There’s been a lot of hype around credit scoring lately, but none of it seems to make a difference for the mortgage industry.
Well, that could all change this summer. FICO has released a new credit score suite, FICO 10 and FICO 10T, built to enhance current credit scoring models and use predictive technology for better risk analysis. Here is a description from FICO themselves:
“FICO® Score 10 delivers increased predictive power, while preserving the trusted and proven FICO Score minimum scoring criteria. Plus, FICO Score 10's backward compatibility to previous FICO Score versions ensures continuity, ease of use and stability for lenders and investors. Lenders can more easily transition to FICO Score 10 since it includes standard FICO reason codes, a similar odds-to-score relationship as prior versions and consistent score ranges.”
There’s very little information available as to when a change could be made in the mortgage industry. However, because FICO 10 is compatible with previous FICO score versions, it has a higher likelihood of getting implemented than previous credit scoring models launched in the past. John Ulzheimer lists the potential downside for consumers with the FICO 10 score in his blog post for Experian:
Late Payments Will Be More Damaging
“With the FICO® Score 10 Suite, the impact of late payments is more pronounced than with prior FICO® Score versions. This means consumers who miss payments are likely to experience a more severe drop in their credit scores under FICO® 10 than under previous FICO® scoring models.”
Credit Card Utilization Will Play A Bigger Role
“While credit utilization has long been a component of credit scoring models, its impact will be more pronounced in FICO® 10.”
Personal Loans May Negatively Impact Your Credit Score
“Early reports about FICO® 10 revealed that personal loans would be treated differently than they were in prior FICO® versions, and that consumers might be penalized simply for having personal loans on their credit reports. This is a notable difference in how FICO® Scores have traditionally treated personal loan accounts.”
FICO 10 and FICO 10 T are going to shake up the credit scoring market with the use of Trended Credit Data and new implications for the rise in personal loans and credit card debt.
Over the past few years, we’ve seen credit scoring models become more consumer friendly. With FICO 10, it seems that trend may be reversed as consumers with already low credit scores could be punished even more than they are with traditional credit scoring models. We don’t know when this will be implemented in the mortgage market, but it’s important to educate your clients on the urgency of building healthy credit for the long term.
If you have clients that are struggling with low credit scores or derogatory accounts, now may be the right time to help them start their journey towards healthy credit. Learn more about our responsible credit repair platform and how you can build an annuity of future business with Premier Credit.