The FICO Model 10 was announced on Thursday by Fair Isaac Corp., the company that came up with the FICO credit score to include the debt level of a consumer while calculating their credit score. The changes were reported first by the Wall Street Journal, who suggested that consumers who have pending loan payments are more likely to see a change in their credit score. According to the estimates from FICO, around 110 consumers are expected to see a loss of about 20 points to their credit score or at least 80 million consumers will see a change of about 20 points in either an upward or downward direction.
The new scoring model will give the on-time loan payers a much better scoring while giving the defaulters a much lower score, thereby bridging the gap between the two. The total household debt witnessed an upward graph in the last two years, with the current total being around USD 13.95 trillion, as per the official numbers of September 2019. As per the analysts, this was expected to happen owing to the increasing need of assessing debt risk better. Analysts have also suggested that consumers will not instantly see the changes in scoring model. Also, it is up to the lenders now to decide which model they wish to adapt going forward and even if they adapt to the FICO Model 10, it is up to them as to when they wish to imply it.
Talking about credit scores in the United States, the average credit score in the country reached 703 in 2019 setting an all-time high record. Over 59 per cent of the Americans had a FICO score of over 700, the largest percentage of Americans to be above that mark.