In late 2019, Fair Isaac Corporation—better known as FICO—introduced a new credit scoring model called FICO 10. This model is designed to provide a more accurate assessment of an individual's creditworthiness than the previous model, FICO 8. Here's what home buyers need to know about how the new scoring model may impact their ability to secure financing.
How FICO 10 Works
FICO 10 uses artificial intelligence and machine learning to analyze an individual's credit history in greater detail than ever before. This includes taking into account both positive and negative information that may have been previously overlooked. As a result, the score provided by FICO 10 is intended to be more predictive of future credit risk than the score provided by FICO 8.
The Impact of FICO 10 on Home Buyers
For home buyers, the most significant impact of the new scoring model is likely to be felt in the form of higher interest rates. Because the new model is designed to be more accurate in assessing risk, lenders are likely to view borrowers with lower FICO 10 scores as being a more significant risk and will charge accordingly.
Of course, not all lenders use FICO scores when making lending decisions, so it's always important to shop around for financing before agreeing to terms. Additionally, it's important to keep in mind that while a higher interest rate may cost more in the short term, making payments on time and in full will help improve your score over time, which could save you money down the road.
The bottom line is that the new FICO 10 credit scoring model is likely to have an impact on home buyers in the form of higher interest rates. However, this doesn't mean that you won't be able to find financing at a reasonable rate—it just means that it's more important than ever to comparison shop for lenders before agreeing to terms. Additionally, remember that paying your bills on time and in full will help improve your score over time, regardless of which scoring model your lender is using.
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