Fair Isaac, the giant credit score company, recently announced the biggest change since 2014 in how it determines its FICO credit scores. This new FICO 10 system—expected to go into effect by year’s end—could affect your retirement in big ways, possibly for the worse and possibly for the better. Having good credit is especially important in retirement. It can save you thousands of dollars with a lower interest rate on a mortgage, car loan or credit card. And a high credit score could help you get a rewards credit card or a better interest rate with one, making travel in retirement less expensive. Insurance premiums, utility bills and apartment rents may also be more affordable when your credit is in good shape.
According to FICO, about 40 million people could see their credit scores rise 20 points or more with the new system. But another 40 million could see their scores drop 20 points or more. And about 110 million people could see their credit scores go up or down by under 20 points.
Here are three ways the FICO 10 changes could hurt your credit score:
- Late payments could trigger a bigger credit score drop than before.
- If you have a history of not paying off your credit card debt in full every month, your credit score may decline.
- Personal loans might damage your credit score, especially if you use them to consolidate credit card debt, but then run up credit card balances.
That said, many of the general rules you’ve learned about earning a good credit score still apply under FICO 10. For example, it will still help to pay your bills on time, keep credit cards open and review your credit reports for errors often. But you may want to tweak your approach to credit management in light of the new scoring changes to come. Here’s how:
- Be sure not to be late on your loan and credit card payments.
- Make paying off credit cards a bigger priority.
- Be careful how you use personal loans.
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