For many people, even the mention of the phrase "credit score" can elicit feelings of terror. Nevertheless, there's no getting around the importance of keeping up with one's personal finances, and watching your score is a huge part of this. Come this summer, FICO will be rolling out a new scoring model called FICO Score 9, and getting a sense of what is to come before it hits is one of the most important things you can do for yourself financially at the moment.
A credit score can be viewed as a numerical representation of one's creditworthiness. It helps creditors, landlords and other lenders determine whether or not it would be risky to give someone a loan or credit card, and gives them a better idea of how and when you'll pay it off. As with anything else, however, the world of lending is constantly in flux, which means it's essential for updates to be made to the scoring system. Enter FICO Score 9.
FICO and its Updated Model
For those who are unfamiliar, FICO is one of the leading predictive analysis firms in America. The predictive models created by the company have become the standard for determining consumer risk and are used by countless businesses and lenders throughout the U.S. In 2013, for example, lenders purchased a whopping 10 billion FICO scores to determine whether or not certain individuals are eligible for loans. As market dynamics change over time, FICO typically works to create new models that address these shifts and better predict a person's creditworthiness, with FICO Score 9 being the latest in the run of developments.
In many ways FICO Score 9 will work in the same manner as FICO Score 8, the current industry standard used by creditors and lenders. This being said, the company states in a press release that FICO Score 9 will improve "predictive power" and make for a more accurate representation of one's score. Per FICO's chief analytic officer, Andrew Jennings, "Our innovative, multi-faceted modeling approach incorporates a more exhaustive characteristic selection process to build a score that is even more effective across a wide variety of situations."
More Consistency Among Major Credit Bureaus
If there's one issue that has made it somewhat difficult for lenders to get the most out of purchasing credit scores, it's the fact that there can often be variation between bureaus regarding an individual's score. There are three major credit bureaus that provide scores to both lenders and individuals — Equifax, Experian and TransUnion. When one orders their credit report, however, it's not uncommon for each of these bureaus to provide a slightly different score. Sometimes, the inconsistency between scores can be quite high, which can cause confusion for both lenders and individuals alike. One of the major improvements that FICO says will come along with FICO Score 9 is that these inaccuracies will be less apparent, thus making it easier and faster for lenders to make a decision regarding whether or not they want to issue a loan to someone.
A Host of New Types of Scores
While FICO Score 9 will serve as a change for general consumer credit, it's not the only shift in dynamics that the company is making. FICO is billing Score 9 as the first in a suite of new scoring models, with others to follow that focus on specific industries. Scoring systems will differ between credit cards, mortgages and auto loans, for example, which will serve as a huge update to the way credit scores are internalized and used. Lenders are looking for ways to extend credit to new customers while still sticking to a variety of important guidelines and rules of practice, which is perhaps one of the major reasons why FICO is putting so much emphasis on more specific scoring models.
As the launch of FICO Score 9 nears, more details will surely come to light. Pay close attention, and you won't have to worry about how these changes will affect you.
This article originally appeared on MyBankTracker