FICO changes mean 40 million Americans could soon see lower credit scores

About 40 million consumers who have fallen behind on their bills or have rising debt levels could see their credit scores fall significantly under changes being made by a widely used credit rating agency.

Fair Isaac, which produces the FICO credit score, said the severity of the downward shift would depend on how recently the consumer had fallen behind and by how much.

Consumers who already have high credit scores, at least 680, could see it rise even further. “Consumers that have been managing their credit well … paying bills on time, keeping their balances in check are likely going to see a gain in score,” Dave Shellenberger, vice president of product management scores, said in a statement.

Most consumers, about 110 million, will see their scores swing about 20 points in either direction, according to Fair Isaac. Consumers will begin to see the changes in their scores over the next year, Fair Isaac said.

The changes come as consumers are accumulating record levels of debt that has worried some economists but has shown no sign of slowing amid a strong economy. Consumers are putting more on their credit cards and taking out more personal loans. Personal loan balances over $30,000 have jumped 15 percent in the past five years, Experian recently found.

Despite increasing debt loads, delinquency rates have remained relatively low. About 6 percent of consumers were late on a payment in 2019 compared with 15 percent in 2009, according to WalletHub.

The changes being implemented by Fair Isaac were first reported by the Wall Street Journal.

Fair Isaac periodically updates its scoring model, but in recent years, it has been to increase consumers’ scores, increasing the population of people receiving credit card offers and loans. This new model is aimed at helping companies reduce the chances they will lend to people who will eventually default, the company said. It could reduce defaults among new auto loans by 9 percent, for example, Fair Isaac said.

The new model also will consider a wider set of data, including consumers’ account balances over the past two years. That will give lenders more insight into how individuals are managing their credit, Fair Isaac said.

“Many lenders want to leverage the most comprehensive data possible to make precise lending decisions,” Jim Wehmann, executive vice president for Scores at FICO, said in a statement.

FICO credit score ranges from a low of 300 to a high of 850. A high score – along with other financial factors – can translate into lower interest rates and more lending options for borrowers. A low score can make it difficult to get a credit card or rent an apartment.

Last year, Fair Isaac said the national average credit score had hit an all-time high of 706 compared with an all-time low of 686 during the Great Recession.