Credit scores may soon fall for millions of U.S. consumers.

Fair Isaac Co, the company that creates the FICO score, said it could lower scores for consumers if their debts increase, and they skip payments, according to the Wall Street Journal.

The changes come as U.S. consumers have taken on record amounts of debt in recent years, and could be an acknowledgement that financial lenders may be losing confidence in the economy, according to some reports. Total U.S. consumer debt stood at nearly $14 trillion in the third quarter of 2019, according to the New York Federal Reserve, eclipsing the previous record of $12.7 trillion set in the third quarter of 2008.

The changes also come despite increases in credit scores nationally.

Who will be affected?

Approximately 110 million consumers are likely to experience changes to their credit scores, according to CNBC. Most people will reportedly see a movement of less than 20 points in either direction. Forty million will reportedly see a shift of more than 20 points upward, and another 40 million will see a shift downward. 

People with scores of 680 or higher (considered good credit) are likely to see increases to their scores, while those with scores less than 600 (considered fair to bad) who miss payments or increase their debts, are likely to experience decreases, according to the Wall Street Journal. FICO will also begin flagging people who sign up for personal loans, a category of riskier loans that has surged in recent years. 

Why is this happening now? 

Fair Isaac is introducing a new credit scoring model that it’s selling lenders to help them to identify the best credit risk opportunities as indebtedness rises, according to reports. However, lenders have a choice of which credit score models they use, including older models from Fair Isaac. 

It’s something of an about-face for Fair Isaac, which has spent years trying to incorporate other consumers information that might help increase consumer scores, such as cell phone bills and on-time rent payments.

More about credit scores

Your credit score is a key part of your financial life. It determines how much credit you can get, the interest rates you pay on your loans, and how much it might ultimately cost you to buy a house or a car, among other things.

Fair Isaac uses credit history data compiled by credit bureaus Experian, Transunion, and Equifax to determine your credit score. Your credit usage information is regularly transmitted to these three agencies.

A credit score can range from 300 to 850. The better your credit, the higher your score. Perfect credit is 850.

Your credit score is determined based on your use of credit.

What you can do

The most important factor is how well you handle credit, which chiefly means how timely your payments are. If you’re late with payments or have stopped paying a loan, that’s going to have a negative impact on your credit. Another key factor is how much of your available credit you use. As a general rule, try not to use more than 30% of your total credit lines. 

You can find out more about how to improve your credit score here

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