Earlier this year, FICO announced that they are going to adjust the way credit scores are calculated. So what can you expect? The traditional FICO score is based on a number of factors including credit history, level of debt, credit age, types of credit, and credit inquiries. The new model is going to introduce “trended data” to provide more insight into consumers' credit behaviors. Here’s an example of how “trended data” works: in the old model, a credit card account would be scored by looking at the balance vs. the credit limit. So if you have a balance of $5,000 vs a credit limit of $10,000, your scores would be based on a 50% credit utilization. But with Trended Data, the system looks back over the past 2 years and sees where that balance started and where it is now. So if your balance was $8k last year, and now it is only $5k, the system recognizes the trend that you are paying your balance down. The new scoring system will help millions of people boost their credit scores but it can also have adverse effects. Don’t try to trick the system, avoid balance transfers, pay the debt down, keep your credit utilization low, and pay your bills on time!
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