Episode Transcript
[00:00:00] Speaker A: It is Take Control Tuesday, and Manta Moussa is on the phone with me. Manta, you were talking to me off the air about this new credit score model that is about to hit some of these businesses that use our credit scores. And what's the name of it, and what do we need to look for?
[00:00:19] Speaker B: Yeah, there's a new credit scoring model called FICO 10T. Now, we've all heard of FICO scores, and this is a new one that's coming that lenders are moving to increasingly. So what we want to do is make people aware of the changes and how to stay on top of it. Now, before anyone gets concerned, let's say this. The basic rules of credit have not changed. Okay? Pay your bills on time. Keep your balances reasonable to your credit limits. That's your credit utilization ratio we've talked about in the past.
And avoid taking on more debt than you can manage right now. Those fundamentals still drive your credit score.
But what's changing is how lenders evaluate your credit behavior. Older credit scoring models mostly work like a snapshot. They looked at your credit at one moment, calculated a score based on what things look like right then.
But FICO 10p adds something different.
Lenders can now see how your balances have moved over time. Oh, sometimes over many months. So just instead of a snapshot, they see more like a short movie of your credit behavior.
They can see whether your balances are rising month after month, staying about the same, or gradually declining. And that trend tells lenders a lot about risk. If your balances keep creeping upwards, that can signal your growing reliance on credit. If your balances are steadily declining, it signals improving financial stability.
So the direction of your balances now matters more than it used to.
The good news is you don't need complicated strategies to benefit from this. You just need consistent behavior. Okay, so here are a few things people can start doing now so that when FICO10T becomes more widely used, they're already well positioned.
First, if you carry a balance on a credit card, try to pay more than the statement balance each month. Mm, let me say that again.
If you carry a balance on your credit card, try to pay more than the statement balance each month. Even $1 more helps.
[00:02:54] Speaker A: Wow. Okay.
[00:02:55] Speaker B: Because that creates the pattern where the balance declines month after month. And under the newer scoring models, the declining pattern sends a strong signal that your credit situation is improving.
Second, understand something important. It's not the size of the decline that matters. It's the direction even small reductions show progress. Okay, now, from a financial standpoint, you still will try to pay as much as you can reasonably because that reduces interest and improves your credit utilization faster.
But from a credit scoring standpoint, lenders want to see a clear downward trend in your balances over time, right? Third, if you use your credit card and pay the balance in full every month, keep doing that.
That behavior still shows lenders you use credit responsibly without carrying long term debt. Just pay attention to how large the statement balance is relative to your credit limit. So here's the takeaway. Credit scoring is slowly shifting away from judging you based on one moment in time and toward evaluating financial trends over time. Are balances creeping upward or gradually moving downwards? That trend tells lenders a lot about how you manage credit.
So instead of asking how to move your credit score this month, ask a better question. Is my credit behavior trending in the right direction?
So here's what you want to do. Look at your balances and ask yourself, are they slowly going down? Are they slowly creeping up? And if you have some that are creeping up, change that direction by paying a little bit more each month and having that showing a declining balance.
[00:04:58] Speaker A: This is some great information, Manson. We're going to put it up on the website attakecontrol Tuesday.com make sure you share this with others because it is crucial for everybody. So go to take control Tuesday.com thanks so much Mansa.
[00:05:13] Speaker B: Thank you.
