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I have written often about the Fair Credit Reporting Act, but never discussed FICO scores in detail. Those knowledgeable in consumer finance recognize that a FICO score is a three-digit number that Fair, Isaac & Company developed years ago to assess the creditworthiness of consumers. It has become the gold standard in credit analysis—but has recently run into opposition from advocates who say that it unfairly diminishes the creditworthiness of too many consumers.

In response, Fair Isaac, now known as FICO, has “remodeled” its system to put less emphasis on a snapshot of a consumer’s payment history, and more emphasis on the consumer’s repayment history over time.  And, the remodel will target personal finance loans as more and more Americans turn to traditional consumer finance companies for their borrowing needs.

Interestingly, consumer household debt has topped $13.9 trillion as of the third quarter of 2019. For comparison purposes, the National Debt of the USA is, as of this writing, $23.2 trillion.  (A link to the “national debt clock” is attached here for your amusement/horror.)  And, this is why I contend that consumer finance is the fuel that drives the American economy.

In any event, FICO insists that about 80 million people will see a shift of 20 points or more in their FICO score. Approximately half that number will enjoy an increase in the score, and about half will suffer a decrease.  The bad news is that those whose scores will diminish are already struggling with debt. It should be noted that mortgage companies will continue to use the old FICO scoring system.  The new system will come into use during the summer of 2020.

It remains ever important to remind your customers of the fundamentals of obtaining and retaining a good credit score:  

• Pay debt on time
• Maintain low or no credit card balances (but do not cancel the credit cards even with a $0 balance) 
• Never get more credit than can be repaid