FICO Score 2020 — What You Need to Know

By Miranda Marquit

One of the biggest pieces of credit-related news recently was the announcement of the new FICO Score 2020.

The Fair Isaac Company, the owner of the proprietary credit scoring model, announced that it’s making tweaks to one of the most influential financial decision-making tools out there. These updates are likely to result in shifts for up to 80 million people, according to reporting from CNN.

So, if you’re looking to make money moves in 2020, here’s what you need to know about what’s coming from FICO this year.

Higher Credit Utilization = Bigger Drop

According to CNN, those who have a higher credit utilization are likely to see a bigger drop in their scores. So, if you carry a high credit card balance in relation to your available credit limit, you could take a bigger hit to your credit score.

This comes with some nuance, though. Supposedly, those who make a big purchase, or that occasionally carry a high balance, won’t see the same level of impact as those who consistently have a high credit utilization.

Finally, those who pay off their cards each month should see a better score.

Personal Loans Get More Attention

FICO Score 2020 is going to put a little more focus on personal loans, according to CNN. In recent years, personal loans have grown — especially online personal loans. However, they’ve mostly been recognized as another installment loan.

Not anymore.

The new scoring model will put a penalty on personal loans for being personal loans. So, they will be treated differently from other installment loans, like car loans and mortgages.

How to Manage Your Credit with FICO Score 2020

These changes are expected to be in effect by the summer of 2020, so you have some time to start reforming your credit habits to prepare.

As you might expect, though, avoiding serious consequences with FICO Score 2020 mainly comes down to avoiding big credit mistakes. While there are some tweaks to the algorithm that are likely to impact millions of people (half should see their scores rise while the other half see them drop), the reality is that maintaining good credit is fairly straightforward:

  • Make your payments on time and in full: Your payment history accounts for 35% of your credit score. As a result, being on time with your payments makes a big difference.
  • Keep your debt balances low: With the FICO Score 2020 putting more emphasis on credit utilization (30% of your score), it becomes even more important to reduce how much you carry month-to-month on your credit card. The best choice is to pay off your balances each month.
  • Maintain a good credit mix: If you have other types of loans that are considered more “reputable,” those can help your score. Your credit mix accounts for 10% of your score, so that can help a little. It’s especially important to pay attention to your types of accounts with the new focus on personal loans.
  • Consider keeping older accounts open: The longer your credit history, the better your score. While it’s not the biggest factor, at 15%, it can still help, especially if those older accounts consistently have low balances.
  • Be careful about new credit: Your new accounts can impact your score by up to 10%. The more new credit you try to get in a shorter period of time, the more likely you are to see a ding to your credit score.

Other Good Financial Habits

You can support your good credit under the new FICO Score 2020 by developing solid financial habits.

When you develop a healthy approach to finances, you’re far more likely to maintain a good credit score. Here are a few things you can do to promote better finances overall:

  • Have a spending plan: A good spending plan, whether it’s a traditional budget or not, can make a big difference. Know where your money is coming from and have a plan for using it wisely — and living within your means.
  • Pay non-credit bills on time: While you might not see a credit score increase from an on-time utility payment, missing these payments can result in reports to bureaus and lower scores. Make an effort to pay all your bills on time.
  • Have an emergency fund: Some sort of emergency fund can help you make your payments on time and avoid missing payments during a setback.
  • Invest: Having a good investing plan can help you grow an emergency fund and reach other goals that can help you in the long run. Investing can help provide you with resources that can prevent the need for debt.
  • Use proper insurance coverage: Don’t overlook asset protection. It can keep you out of trouble.

Bottom Line

Yes, FICO Score 2020 could negatively impact your credit and lead to higher interest rates and other issues. However, if you take steps to develop and practice good credit and financial habits, you can limit the extent of the negative impacts.