In the world of finances, certain metrics come into play, whether or not lenders would offer housing or car loans to you, extend your line of credit, etc. These metrics help them understand whether you get trusted enough to grant you credit.
So borrowers have developed several different systems of metrics to assess their risks. One of those is your credit score.
Having a good credit score can lead to many important financial advantages. For example, you can use it to buy a car or a house or simply make your payments in a restaurant or supermarket.
If you are on your way to understanding how to boost your credit score, you have probably heard of FICO scores already. This article will explain what the FICO score is about, how to calculate it, and the ways of its improvement.
FICO is a credit scoring model introduced by the Fair Isaac Corporation to consumers in 2016. The credit scoring model is updated from time to time FICO 9 is one of the newer models to calculate scores.
If you are interested in getting your FICO Score 9, you can get it directly from FICO. Other options include certain credit card issuers, lenders, or credit counselor.
Understanding FICO 9
FICO 10 is the latest iteration, and FICO 9 is the second latest version of the FICO scoring model. Its main function is to show your reliability in paying your debts on time to lenders and landlords via scores.
While there are many credit scoring models out there, your FICO score is something that you should keep track of because about 90% of lenders use FICO scores to determine your creditworthiness.
FICO is calculated differently from the typical data in your credit reports, with some debts weighing more than others. Through their proprietary algorithm, they measure certain factors like new credit, length of credit history, payment history, etc.
All of these factors inserted into the FICO formula will result in a three-digit number - ranging from 300 to 850 - that being your FICO score. For example, a 300 score is the lowest one. Thus it won’t give you enough trust to get big loans. A score of 850 is the highest, so being included in this category will mean getting the highest level of trust from borrowers.
Thus, the chances you will get a loan, even with a significant amount of credit, are 100% guaranteed. The categories with the scores in-between are typically considered by borrowers individually, taking into account many factors, like whether you have already been given a loan by this or that borrower.
Because of various trends of consumers and their behavior with things such as debt, the FICO scoring model has gone through multiple revisions, with FICO 9 being one of the latest ones. Therefore, you may have a different credit score from a past version of FICO compared to the FICO 9. It is usually up to the lender which model they will use.
FICO 9 Changes
The FICO 9 was launched in 2014 and introduced significant changes to three major categories: rental history, medical collections, and paid collection accounts.
While the FICO 10 is currently the latest FICO score product, FICO 9 will continue to be relevant in the coming years, with the key changes being perfect for consumers. Additionally, the FICO Score 9 is a good starting point for those with little or no credit score.
Let us examine these differences and why they could be beneficial for you.
If you are somebody who is currently renting the place you live in, FICO 9 brings good news to your credit score! In the past versions, having a good rental history didn’t change your credit score. It only maintained it. On the other hand, having negative things on your rental history, such as unpaid rent, would cause your credit score to go way down.
People who pay their rent on time consistently will have their credit score go up thanks to the FICO 9. As stated above, this is good for those getting started, as it's basically a free credit score as long as you pay on time.
Remember that since landlords are not required to record your rent payment history to the credit bureaus, you should talk to them about this change.
Consider asking your landlord if they can report your rental payments to the credit bureaus. Ensure you make all rental payments on time and in full. This will help you improve your credit score quickly.
According to a 2014 report issued by the Consumer Financial Protection Bureau (CFPB), medical debt significantly and negatively impacted consumer credit. The USA faces medical debts as one of the biggest challenges alongside students' debts for higher education.
Based on the CFPB, 43 million Americans face unsettled medical debt on their credit reports. With this information, the past FICO versions have put more pressure on consumers as they are less forgiving with unpaid medical collections.
The Consumer Financial Protection Bureau made the point that consumers might be held liable for the medical debt as a result of billing disputes between their medical provider and insurance provider.
This means that consumers might not be aware of their medical debt until they receive a call from collections. Therefore, consumers had to worry about their credit scores in addition to having to deal with obtrusive phone calls from collection agencies.
If you are a person who is struggling with this pressure, worry not. Fico 9 will surely help with these issues. Fico 9 sets to lessen your burden by focusing less on medical collections when determining your credit score.
Remember that this does not mean you won't need to pay for past or current medical bills anymore. This still affects your credit standing but not as much as your non-medical debts, unlike in the previous models.
Paid Collection Accounts
The past scoring systems have not been very kind to consumers regarding debts in general. Even if you have already paid and cleared your past collection accounts, unless you take an active role in erasing your paid debt history or wait 7 years, these would still show up and negatively impact your credit score.
However, with FICO 9, your paid collection will still show, but it will be negated in credit scoring as long as it is already fully paid. So, say you have a low score due to current debt. Once you have paid for it, your credit reputation will have a chance to recover, unlike before.
This feature is also present with the latest versions, FICO 10 and FICO T. This makes FICO 9 more flexible and affordable for lenders who take a high level of responsibility for their debts.
So responsible and interested customers may benefit from this change in two ways. First off, despite having debts from unanticipated medical or other recorded financial emergencies, it gives consumers a chance to improve their FICO 9 credit scores. So they are highly motivated to seek FICO 9 assessment.
Additionally, it serves as a motivator for customers to pay off their unpaid debts because by doing so, they can improve their credit scores for a debt that was previously in collections.
Of course, the task may often seem challenging, but a good paid collection history is what will make a credit score higher, thus giving more opportunities to get a bigger loan at a lower interest rate.
What Lenders Embraced FICO 9
Even though FICO 10 is the newest iteration, not everyone has embraced even FICO 9. In fact, most lenders are still on FICO 8. However, FICO’s Tommy Lee, the principal scientist at FICO, expects that FICO 9 will be the base credit score model in the years to come. So FICO 9 is essential to learn and understand.
Those who have embraced FICO 9 are the following:
- Credit Cards
- Auto Lenders
- Car Loans
The most notable omission from the list is mortgages which still use FICO Scores 2, 4, and 5. Regardless of what credit score model your desired lender uses, just keep in mind to do the basic stuff, such as making your monthly payments on time and keeping your debt balances down as much as possible.
Sometimes, some lenders use their own credit scoring models, so check them out before applying for a loan. If you can’t find their models, ask them about FICO 9 calculation. In most cases, you will easily find a borrower who accepts this scoring model.
What FICO 9 Credit Scores Tell Lenders
With FICO 9 credit score, lenders will be able to assess your likelihood of repaying a debt. It is a proven formula that helps them with consumer credit behavior, improved operational efficiencies, and support for meeting regulatory compliance.
Basically, this is one of your main key factors when lenders decide whether to offer you credit or loans. The calculations are not hard to understand and conduct, even if you do not have a strong mathematical or financial background.
If you need a car loan in order to finance a car purchase in the next couple of years, a good credit score will be a big help, as the bank will be more than happy to assist you in your big purchase.
So it is important to check your estimated or actual FICO score before you start applying for a loan or when issuing a credit card. Try to track your credit score every quarter or even month. Still, the annual credit score calculation is vital to understand and plan your next year.
Where to Get Your FICO Score 9
So there are various ways to get your FICO 9 score. Some are free, while some come with fees:
- Purchase it from FICO.
- myfico.com - they have a free FICO scores estimator, and also, you can get your actual FICO credit score for approximately $20 per report.
- Check if your credit card company or bank will allow you to see your FICO score. Keep in mind that only select banks offer this free perk.
- You may check with the Consumer Financial Protection Bureau for a small fee to get your FICO score.
- FICO’s Open Access Program - you may get your FICO score through a lender and/or a credit counselor.
Try to make calculations regularly. As mentioned above, it will save you time while planning your next year’s budget.
How to Improve FICO 9 Credit Scores
Whether you are a trusted and responsible debt payer or not, you will face the need to improve your credit score. Getting married, having kids, spending holidays, and other stuff we are used to enjoy will demand higher spending from year to year. Want to improve your credit score? Don’t worry. Here is some advice to help you with your goal:
- Avoid late payments - Your payment history is essential in determining whether you are a credit risk. Pay your debts on time as much as possible. The later your payment is, the harder the consequence is to your credit reputation. Schedule your payments, track your spending and control your budget.
- Less credit utilization - How regularly you use your credit is also a factor in your score. If you can, try to maintain a 30% or below credit utilization rate, as advised by Experian. Check what is left on your credit cards every month. Compare the amounts you have spent and those available on your accounts.
- Keep track of your credit report - Take note of your credit habit to learn how to improve your way of spending. Also, pay attention to any irregularities so they can be solved quickly and not further plummet your score.
- Report your rent payments - when you report rent payments, it will help you build credit even without a credit card.
- Improve your spending habits - try to pay the “right” debts and cheques, including those for medicines, treatment, rent, utilities, education, and other payments that are vital and considered as of high priority by banks and other borrowers.