If it seems like you and everyone around you had a pretty great credit score this last year, don’t worry, you’re not imagining things. According to CNBC, in 2019 the average American FICO score has been at an all time high at 706. Unfortunately, this mountain peak won’t last very long.
Just recently, the Fair Isaac Corporation, also known as FICO, announced a change to the current version of the FICO score. Although the new version will reflect a more accurate reading, it may result in more Americans seeing a drop in their credit scores. The FICO score change is on its way and Americans nationwide can expect to see lenders implement this new change by fall of 2020.
How will this change affect you?
If you’re already blessed with a sky-high credit score, is there anything to worry about? It depends. For example, if you are a business owner, you’ll still need to be on guard. One reason is because this change will affect the business loan process.
“Business financing is one of the greater challenges for most business owners because of the long, time-consuming process,” says Brian Tremar, co-founder of Opportunity Business Loans. “Most business owners will have to apply with multiple lenders just to have a shot at application approval because every lender has different eligibility requirements.”
However, Tremar expects that credit scores will still play a huge part in the approval process, meaning that the FICO score change could make this loan process more difficult for business owners in need of financing. So what can business owners (and any borrower) do to protect their score from the coming change? Here are a few things to keep in mind.
Check Your Current Credit Score and Credit Report
One sure-fire way to prepare for the coming change is by taking a look at your current credit score and credit report. This is so you can check for any inaccuracies and dispute them right away. Credit scores can suffer from mistakes and false information and the only way to remove these stains off your 7 year record is to dispute the marks with the credit bureaus.
Unfortunately, since the dispute process can be time-consuming, it’s important to start sooner than later. If you’re short on time and need help ASAP, an alternative method is to use a credit repair company, which can help you find the best company for your situation. Credit repair companies are well-versed in what your case would require and will contact the credit bureaus for you.
Stay on top of payments
Another way to keep your score up is to be extra diligent when it comes to staying on top of payments. Late payments or incomplete payments can greatly affect your credit score because lenders look at your payment history for signs of “creditworthiness.”
This concept examines a borrower’s ability to pay back a loan consistently and in full amounts as well as the likelihood of defaulting. Borrowers who have evidence to prove their ability to pay back a loan will be awarded with more credit and trust from lenders, and this track record is displayed on your credit report as well as personal references.
If your payment history is spotty and shows inconsistencies, then lenders will be more reluctant to grant you creditworthiness. Future lenders will use this payment history to gauge whether or not your application will be approved for loans.
These records will also determine your loan’s interest rates; the better the credit, the lower the interest rate. Therefore, staying on top of payments and having a consistent payment history will be important to the process of building creditworthiness.
Keep an eye on credit utilization
One last tip is to keep an eye on your credit utilization. Before you swipe your card for a large purchase, take a step back and examine how much of your credit you will be using for the purchase. The rule of thumb is to keep your credit utilization ratio under under 30%, so if your credit limit is $10,000, you will want to keep your usage under $3,000.
You can calculate your credit utilization ratio by taking the amount you spend, dividing the amount by your credit limit amount, and multiplying this number by 100. This should get you your percentage ratio.
Another way to keep your credit utilization down is simply paying off your balance more than once each month. This will help keep the balance under your credit usage ratio and can also help you keep track of how much you are spending over time.
With the new FICO score on its way, Americans should brace themselves for the impact the change may have on their credit scores. By keeping their credit reports up-to-date and free of inaccuracies, staying on top of payments, and keeping their credit utilization low, borrowers can get ahead of the change and do their best to stay afloat with their credit scores.