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FICO is introducing a new way to calculate credit scores that could hurt consumers who fall behind in their payments and help those who pay off their debts quickly.

Although it will take months or years for most lenders to adopt the new credit formula, the changes are another reason consumers should adopt a smart credit strategy.

Fair Isaac, which produces the widely used FICO credit score, typically upgrades its formula every few years. The last upgrade, FICO 9, was released in 2014. FICO 8, which launched in 2009, is still widely used by lenders, in part because of the cost of upgrading.

Still, this new version, called the FICO 10 Suite, is expected to be  adopted by many lenders in the next year or so. With this model, personal loans will be treated as a separate category of debt. 

"The changes mean that if someone consolidated their credit card with a loan, and then continued to run up debt, that will hurt their score," says Ted Rossman, an industry analyst at 

A Longer-Term View of Credit

A version of the new model, called 10T, will evaluate credit card usage trends over 24 months rather than provide a monthly snapshot. With this formula, someone who carries a high credit card balance for a month or two after, say, a vacation trip, then pays it off is less likely to see a lower credit score than before. By contrast, someone who fails to pay off balances consistently will be penalized.

More on Credit Scores

"Trending data has better predictive value in terms of assessing risk," says John Ulzheimer, a credit expert who has worked at Exquifax and FICO. (Another credit scoring company, VantageScore, has been offering trended data in its models since 2017.) 

Based on the impact of past changes in scoring models, FICO 10 may shift the average score a modest amount, perhaps 20 to 25 points, says Ulzheimer. 

The changes come as credit scores are rising—the average score reached an all-time high of 703 last year, according to a recent report from Experian. Scores in the 670 to 739 range are considered good; scores between 740 and 799 are very good, and 800-plus is exceptional.

One reason for the rise in scores is that negative credit indicators, such as bankruptcies and unpaid debts, fall off credit reports after seven years, Ulzheimer says. That's happened for many consumers given the long economic recovery since the Great Recession in 2008-2009.

Consumers have also benefited from a 2015 settlement by state attorneys general with the three major credit bureaus, which set up a 180-day waiting period before medical debt is entered into reports, as well as an improved process for disputing negative information that may result from errors or identity theft. 

Borrowers with thin or subprime credit are finding it easier to improve their scores with new programs such as Experian Boost and UltraFico, which take into account their banking and bill-paying histories. 

But lenders and credit experts worry that too much emphasis on positive data may be underrating financial risks.

"We're in the late innings of the economic recovery, and a lot of people may be riskier than their credit scores might lead you to think," says Matt Schulz, chief industry analyst at

Under FICO 10, "people with good credit are going to score higher, and people who have elevated risk are going to score lower," says Ulzheimer. "That's just a more realistic way of assessing risk."

What to Do

The new FICO formula doesn't mean you need to overhaul a well-designed credit strategy.

"If you already practice good credit habits, they will still serve you well," says Rossman.

But now that the new FICO score takes more of your history into account, there's all the more reason to stay the course. These guidelines can help:

1. Keep tabs on your credit report. Be sure to check your credit report periodically at the three major credit reporting agencies—Equifax, Experian, and TransUnion. That data is used by FICO and other companies to create your credit score.

You’re entitled by law to a free credit report once a year from each of the three major credit bureaus. Go to to ask for a report from one of the companies. By staggering requests among companies every four months, you can continually monitor the accuracy of your reports.

2. Pay your bills on time. About 35 percent of the FICO score is based on your payment history—that is, how often you pay on time. If you can't pay off the full balance, be sure to pay the minimum amount to avoid a late payment.

3. Limit your credit usage. Your credit score is also determined by utilization—how much of your available credit limit is being used. So avoid maxing out your cards.

Be cautious, as well, about applying too often for new credit. If you don't already have a lot of other credit information, new accounts will lower your average account age, which will ding your FICO score. Even if you have a long-term credit record, opening a new account can still lower your score.

"If you stick to these basics consistently, over time your credit score will take care of itself," says Schulz.