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110 million consumers could see their credit scores change under new FICO scoring

"There's no big secret to having a good credit score, it's just consistency and thoughtfulness and commonsense."

Americans who are struggling to pay off their debt could see lower FICO credit scores in their future, especially if they miss payments.

Fair Isaac Corp., the company behind the popular FICO credit score, announced the launch of its latest FICO 10 model today, Jan. 23, that will start incorporating consumers' debt levels into their scoring model.

This comes as total household debt in the U.S. has steadily increased for about two years, and currently sits at about $13.95 trillion as of last September 2019, according to the Federal Reserve Bank of New York. That's higher than the previous high of $12.68 trillion seen right before the 2008 financial crisis.

"This was bound to happen," John Ulzheimer, an expert on credit scores and credit scoring, tells CNBC Make It. "The job of scoring models is to properly assess risk, not simply give people better scores as a default position."

FICO estimates that about 110 million consumers will see a change of less than 20 points to their score under the new credit score model. Overall, roughly 80 million consumers will see a change in score of 20 or more points in either direction, upward or downward, FICO says.

What the FICO changes mean for consumers
What the FICO changes mean for consumers

Those who fall behind on their loan payments are more likely see the drop in their score, according to the Wall Street Journal, who first reported the changes. FICO also plans to flag consumers who sign up for personal loans, which are generally considered more risky since these are unsecured and typically do not require collateral like a car or a house.

"Those consumers with recent delinquency or high utilization are likely going to see a downward shift and depending on the severity and recency of the delinquency it could be significant," Dave Shellenberger, FICO vice president of product management, said in a statement.

The new scoring model will also likely create a wider gap between those who are considered good credit risks and those who are not. Consumers who already have good credit, for example, and who continue to whittle down their already existing loans and make on-time payments will see higher scores. But those who score below 600 will see bigger dips in their scores under the new model.

This is a shift from many of the consumer-friendly policies that have popped up in recent years aimed at bolstering credit scores and building scores for those with little to no credit history by adding in payment history and account information.

"We've unfortunately found ourselves in an era where it's becoming commonplace to water down the breadth of information on credit reports," Ulzheimer says, adding that tax liens, judgments, medical collections and medical debt have all been removed or delayed from some credit scoring models.

"All of this is great for consumers who have tax liens, judgments, and medical collections...but it's not great for scoring models and their users," Ulzheimer adds. But he notes the new scoring model is not "consumer unfriendly" either. "People with good credit are going to score higher with newer models. People who have elevated risk are going to score lower."

Despite the changes, it may take a while for consumers to notice the new changes. That's because "change comes slowly in credit monitoring," says's industry analyst Ted Rossman.

It's up to banks and lenders decide which model they will use. The latest FICO scoring model in use is FICO 9, which was released in August 2014, although many lenders still use older models, such as FICO 8 model that came out in 2009. Meanwhile other lenders prefer to use VantageScore, which is produced by the credit bureaus Experian, Equifax and TransUnion.

"Rather than getting too hung up on which model a particular lender is using, consumers should practice fundamental good habits such as paying their bills on time and keeping their debts low," Rossman says.

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