Big Changes Coming to How Credit Scores are Calculated Big Changes Coming to How Credit Scores are Calculated

Big Changes Coming to How Credit Scores are Calculated

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Credit Scores can be a tricky business that requires good management and staying on your toes to obtain the highest score possible. Well, some people will have to ponder financial adjustments later this year, when the next revision of the VantageScore credit scoring model makes some changes to how it calculates credit scores. The improvements are designed to give a more accurate and representative picture of consumers’ behavior, according to a spokesperson for Vantage Score Solution.

An important point we want to make here is that this change is only to the VantageScore scoring model, and not the FICO models, which is the larger of the two scoring models used in the US.

Upcoming Changes

The single biggest change to your score is the use of trends and trajectories. Your score will improve if you are making larger payments and paying down your debt. This is a marked change where previously your score would remain unchanged as long as you were meeting the minimum payments, even if you were accumulating more and more debt. Now, with a trend of taking on more debt, your score will take a hit.

The second change is with credit utilization—the amount of debt you have as a percentage of your credit limit. Currently, you should aim to have a lower utilization ratio, under 30%. So, for every $1,000 of credit limit you have you should maintain your debt below $300. Additionally, if you make a large purchase that bumps your utilization ratio your score will take a hit, but the new system will look more at your historic trend which will reduce the hit your score will take.

Another change will affect people with many cards or very high credit limits since regardless of your utilization ratio, those with extremely high credit limits will be punished, as they have the ability to take on an enormous amount of debt very quickly. As the system looks at your overall cumulative limits, you might need to consider closing some of your cards if you have a lot of them, since cumulatively they are giving you an over inflated credit limit.

The Reason for the Changes

Currently, there are two primary credit scoring systems being used: FICO and VantageScore. The new method, which only affects VantageScore, is designed to give a better picture on consumer defaults—which is an area in which FICO fell short during the last financial crisis.

While it is unclear which institution is using which credit scoring method, VantageScore is gaining traction fast, as of June 30, 2016. It is being used by 2,400 lenders and 20 of the largest 25 financial institutions. During that period 8 billion scores were used, which is a 40% increase on the previous year.


Any change that improves scoring and forecasting is great news since it reduces the risk to lenders and ultimately makes it cheaper for consumers, as well as giving them the ability to manage their credit. Needless to say, the key to credit management is to pay off your debts and bills in a timely fashion and showing a gradual reduction in your overall debt levels.

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  • Does credit utilization on my Amex biz card (sole proprietorship using my ssn) affect my personal credit score? Because it’s in the name of a business, I’d think it doesn’t. But, because my ssn is attached to it, I think it might. ???

    • JT Genter says:

      Utilization on your Amex Biz Card shouldn’t affect your personal credit score. However, you can always verify that using a free credit score/report service like Credit Karma to see what’s being reported on your personal credit report.

  • Thank you, but I don’t think Vantage Scores mean much

  • Hopefully FICO stands its ground and does not change.

  • This makes me nervous… especially if we can get penalized for having a lot of available credit that we don’t use.

  • Now, time for FICO to do the same!

  • Thanks for the heads up on importance on debt to credit limit ratio. If I am going to apply for a new card, is it a good idea to pay all my card balances in advance, even though the payment date has not come yet? In that way, I will show zero debt when I apply.

    • Steve, this will actually not matter in most cases. Your balances are typically reported to credit reporting agencies once per month, and that is typically on the day that your billing cycle ends. Not all cards do this exactly at this time (some will do first or last day of the month) but you want to make sure you’re not carrying a balance. Ideally you could pay off your balances mid-billing cycle and then when your cycle ends your balance would post as $0.

  • Rob Arias says:

    Luckily, since its not FICO it probably won’t affect many of us. I really hope they take this away though since this could potentially be troublesome for us.

  • Let’s hope that this does not negatively effect those of us with large credit lines who are very responsible with their use.!

  • This is interesting! Always good to know how things are handled with your credit cards. What constitutes LARGE limits? Sometimes you have those more expensive trips, etc and need those higher limits, especially if you have a large family and say going to Hawaii. I am now able to pay my balances every month. Those poor people who can’t are helpless now to get good credit ratings? Any idea of how many cards would be too many? Like if a person has 5 or 10 or is it more over 10?

  • Good to know but ultimately not that consequential.

  • Good to know! In this game, most of us monitor our credit scores pretty close and keep our utilization low. I’m curious to see how much high credit lines impact scores. Might need to make some changes…….

  • This will definitely impact my score!

  • Adam Parsons says:

    Maybe this move will trigger other credit score systems to be tightened also. Probably trying to protect against another major recession.

  • That got me excited then found out it’s not FICO. LOL

  • Ravi Grover says:

    About time! These credit scores need to be more intelligent. Hopefully at some point they will take into account international credit history as well.

  • I try to shed cards slowly. A high credit score with no debt that pay the total value monthly are unaffected?

  • very interesting, seems like they want people to have too many credit cards.

  • Very interesting article! Glad to see that it is gaining traction against FICO!

  • Good to note that when this takes place (and when vantagescore matters), we’ll likely need to plan to cut down on the credit limits.

  • Air Flyer says:

    Interesting, but good changes I feel.

  • Prashant Gangwal says:

    Interesting that this does not affect the FICO scores.

  • Binita Patel says:

    Interesting to see how this will be used, esp given some of the startups are not even using FICO scores anymore for lending!

  • good tips, especially in the blog comments and responses.

  • Guess this will impact my score. Need to lower my total credit available.

    • Think twice before you do that. The impact is only to the VantageScore systenm, not FICO. I’d read through the comments here a bit more and if your scores are safely over 700, I wouldn’t worry.

  • Jacqueline parsons says:

    Good info to know. Many of us probably have too many cards but don’t see this being any issue as long as you pay off in full each month. It’s done to protect us in the long run.

  • this is a little scary for someone that keeps open all the hotel credit cards and doesn’t use them. The free night a year is worth keeping them open but this sounds like it might hurt my credit .

    • Keep in mind, this is only for VantageScore models. FICO is the primary model still used throughout the country, but if you’re concerned you could look at some younger cards that you’re not actively using and decrease their lines of credit. Again, not something I’d personally do, but it is an option.

  • JonKarol says:

    Credit scores are far too subjective. My FICO score on my credit card statements shows over 800, but when I applied for a car loan they told me it was around 750. Still good, but far off from where all of my historical FICO scores showed me to be, which I guess gave me an overinflated sense of my credit worthiness.

    • Because FICO has many score versions, I had the same situation when I was shopping for a car and since I’ve FICO membership I found out that for auto they use FICO score 2, which in my case was almost 50 points less than FICO 8 which is used for CC

  • I imagine many of us are extremely diligent about monitoring our credit score and having this info certainly will pertain to how we proceed.

  • I always pay my balances on time, however I probably have too many credit cards. I will have to evaluate each of them as their annual fees become due.

  • Credit scoring has always been a bit of a game. Now, with the scoring models diverging on what matter, specifically with regard to negative impacts on one’s score, the whole concept loses even more of it’s already thin credibility. (No pun intended.)

  • Interesting, thanks for the update. I keep track of both my Vantage and FICO scores, and I’ve found the Vantage score to be a LOT more volatile than the FICO, sometimes swinging 30 or more points in a week. I wonder if these changes are meant to get it more in line with FICO in terms of magnitude of swings.

    For many of us that chase travel rewards, we should benefit from keeping low balances and paying them off each month, but the hit for high credit limits is a little nerve wracking. Hopefully it evens out…

  • So maybe less focus on keeping large credit lines open?

  • Thanks, good to know. Any idea who among the major issuers use VantageScore?

  • Nice to know that this is Vantage and not FICO. Think I’ll take a hit due to high credit limits.

  • Thanks for this article. While I never carry a balance on my accounts, I have quite a number of credit cards. I guess I need to start closing some of them.

    • I wouldn’t jump the gun and do that, but rather look at your portfolio and your scores — keeping in mind that FICO is unaffected at this time.

    • says:

      I was thinking that too. I never keep a balance on my credit cards, but I have a few open and they all have large credit limits. I’ll be following this thread for any new information

  • Thanks for the update. Too bad there’s not a way to tell which institution is using which system.

  • Maryjane says:

    Thank you for this article. this is particularly important for those of us that have a lot of credit cards open. Although I always pay the entire balances every month, this is a reminder that I probably should close some of the cards that I never intend to use again.

    • Maybe-be sure not to close your longest standing accounts – I believe length of credit history is a score component in FICO.

  • It’s good to know, but as you noted, since it’s not FICO it’s not quite as relevant.