Since 2015 the number of personal loans has risen 42%, making personal loans the fastest-growing category of debt in the country and even more riskier. Previous FICO score models were not anchored as much to personal loan data, yet.
FICO Score 10 and 10T scoring models most substantial changes are how they account for personal loans and how they measure creditworthiness over time.
The most common reasons are debt consolidation, credit-card refinance, and home improvements, according to 2019 data from LendingTree. Interest rates on personal loans are heavily influenced by the borrower’s credit score, and can range from 10% to almost 25%, according to LendingTree.
The changes to the FICO score methodology is aimed to help protect consumers who are not managing credit card debt wisely from getting into deeper trouble with a personal loan. Scores for consumers who aren’t managing personal loans will presumably go down under the new FICO scoring systems.
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