FICO 10T: A New Era of Credit Scoring

For decades, the FICO score has been the cornerstone of creditworthiness assessments in the United States. However, as the credit landscape continuously evolves, traditional scoring models might not capture the full picture. Recognizing this need, FICO 10T emerged as a revolutionary new metric designed to offer a more nuanced and dynamic view of a borrower’s creditworthiness.

A Fresh Look at Creditworthiness: Introducing FICO 10T

Launched in 2020, FICO 10T represents a significant leap forward in credit scoring. Unlike its predecessors, it incorporates “trended data,” which analyzes how a borrower’s credit behavior changes over time. This allows lenders to go beyond static snapshots and assess a borrower’s progress and potential more thoroughly. For instance, a borrower who consistently makes on-time payments and demonstrates responsible credit management might see a positive impact on their FICO 10T score, even if their credit history is relatively short.

Key Dates and the Journey Towards Adoption

The journey towards widespread FICO 10T adoption has been a measured one, marked by crucial milestones:

October 24, 2022: The FHFA officially validated FICO 10T, alongside VantageScore 4.0 (another trended data score), for use by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. This marked a turning point, paving the way for wider adoption in the mortgage industry.
February 22, 2024: The FHFA announced a revised implementation timeline, shifting the transition to the new score models and the bi-merge credit reporting system to the fourth quarter of 2025. This decision aligns with feedback from stakeholders and addresses concerns about potential disruption in the market.
February 29, 2024: The FHFA initiated a public engagement process to gather feedback on the proposed implementation timeline for the new credit score requirements. This confirmed a multi-year effort, suggesting full-scale adoption by Fannie Mae and Freddie Mac might take some time.

The Current Landscape: Lender Adoption

While the FHFA’s validation is a positive step, broad adoption by lenders across all sectors is still in its early stages. Here are some key factors contributing to this gradual adoption:

Integration Challenges: Implementing FICO 10T requires updating existing systems and processes to handle trended data effectively. This can be a complex and resource-intensive undertaking, especially for smaller lenders.
Education and Awareness: Both lenders and borrowers need to be educated about the new score and its implications. This includes understanding how trended data is factored in and how it might affect loan decisions.

Looking Ahead: When Will You See Your FICO 10T Score?

While widespread adoption is still on the horizon, here’s what to expect:

Mortgage Industry: While the official implementation by Fannie Mae and Freddie Mac won’t occur until Q4 2025, some forward-thinking lenders might start incorporating FICO 10T sooner. At the time of this writing, Movement Mortgage, CrossCountry Mortgage, and Premier Lending have transitioned to FICO 10T.

A colorful jigsaw puzzle depicting a house, on a black background.

The “T” in FICO 10T: Solving the Credit Puzzle

The “T” in FICO 10T stands for “Trended,” signifying the model’s consideration of your credit behavior over time. Here’s what you need to know:

Understanding Trended Data: Your credit reports have included “Trended Data” or “Time Series Data” for several years. This data encompasses your most recent 24 months of account balances, scheduled payments, and payment amounts. You can access this information on your credit reports from: https://www.annualcreditreport.com/index.action.
Impact on Revolving Utilization: Lenders can now analyze your credit card utilization (balance compared to credit limit) for the past 24 months, not just your most recent statement balance. This allows for a more comprehensive picture of your credit card management habits.

Why Should You Care About FICO 10T?

Here’s why FICO 10T matters, especially for mortgage applicants:

Impact on Mortgage Applications: While credit card debt is often the most expensive debt, a mortgage is likely to be your largest loan. Even though alternative data sources are being explored, FICO scores and the quality of your credit reports remain crucial factors lenders consider when making loan decisions.
Implications for Credit Card Debt Strategy: Traditionally, financial experts advised paying down credit card debt before applying for loans. This advice remains relevant, but the timeframe has expanded. Since FICO 10T considers your credit card debt management over 24 months, it’s crucial to get your debt under control at least two years before applying for a mortgage, especially a large one.

The Good News and Actionable Steps:

Time for Implementation: The FHFA’s extended timeline for FICO 10T implementation provides breathing room. If you’re planning a mortgage application within the next two years, prioritize paying down your credit card debt now. If you’ve already paid them off, maintain a record of consistent on-time payments.
Benefits Beyond FICO 10T: Paying down your credit card debt is always a wise financial decision. It reduces interest payments, frees up cash flow, and ultimately improves your overall financial health, regardless of credit scoring models.

Final Advice:

Don’t Panic: If you’re planning to buy a house soon, proceed as planned. The updated implementation timeline provides leeway. However, be mindful of the upcoming changes and their potential impact on future borrowing decisions.
Take Proactive Steps: Start managing your credit card debt strategically. Aim to pay it down as much as possible, ideally within two years of a potential mortgage application.
Stay Informed: Keep yourself updated on further developments in FICO 10T adoption and its implications for different lending sectors.