Updated: Feb 28
Tara Mobasher and Tanya Parker, Unity in Action Magazine 2/20/21
Less than 6 months into the pandemic, Americans who spent last year struggling to survive and pay off debt in a declining economy, could have potentially seen lower FICO credit scores due to the launch of its latest model – FICO10. The change knowingly resulted in a greater economic divide as high credit scores would likely go higher and lower scores would likely go lower.
As total household debt in the United States was maintained at $13.95 trillion as of September 2019, COVID-19 made its way to the United States within the following months, eventually shutting down the economy.
During this time, FICO guessed that around 80 million consumers would observe a change in their credit score of 20 or more points either upward or downward, favoring those who are not late on their payments.
Those who make on-time payments will ultimately see higher credit scores.
With just one missed payment a creditor’s FICO10 score could drop over 40 points, which would cause difficulties for homeowners who are late on their payments.
This is particularly concerning for homeowners that will have to qualify for a home loan to refinance after pandemic protections. This is particularly concerning for homeowners that will have to qualify for a home loan to refinance after pandemic mortgage relief ends. Although many banks and lenders use older models, such as the FICO9 model, which was released in 2014, and the FICO8 model, which was launched in 2009, the decision regarding which model to use is ultimately up to them.