Got Bad Credit? New Rules Likely to Make Things Worse — Shutting Millions Out of Middle Class Life

Relief may be in sight for people worried about their credit scores — yet for some the changes under might be bad news.

The Fair Isaac Corporation, which created the credit score as we know it, announced in January 2020 that it was changing the metrics by which credit scores are calculated.

The crux of the new FICO credit score calculation system is enhanced monitoring of credit histories.

Credit card holders who miss payments, fall behind on payments, or consistently maintain large, outstanding balances will see their credit scores more penalized.

Borrowers with personal loans will also find themselves more heavily monitored. More than 110 million Americans will have their credit scores impacted.

However, credit card holders with histories of responsible credit card use, and scores over 680, could see their scores increase under the new FICO metrics.

Meanwhile, those with scores under 600 will see their scores worsen if they don’t improve their personal finance habits.

No relief for millennials

Over 58% of Millennials say that they are financially struggling in life because of bad credit. The average millennial, someone between the ages of 22 and 28, has a credit score of 652.

To put the situation in context, only 27% of Baby Boomers are struggling with bad credit.

Even with the FICO scoring metrics recalculations, millennials may not benefit.

The Card Act of 2009 was enacted to prevent the exploitation of young students new to credit cards. Students under 21 must get a cosigner or prove that they are financially independent to qualify.

The law instead prevented many young people from qualifying for credit, a problem which may become worse for millennials with the new FICO rules.

Unmanageable debt negatively impacts credit histories and severely decreases credit scores. A FICO credit score between 300 to 600 is considered “bad credit.”

The average person assumes over $38,000 in various forms of personal debt. More than a quarter of all such debt is credit card payments.

Additionally, two out of every 10 Americans have incredibly high income-to-debt ratios. They dedicate anywhere from 50% to 100% of their monthly income towards repaying debts.

Unmanageable debt prevents millions of Americans from qualifying for car loans, mortgages, and personal loans, the building blocks of modern life and a middle-class existence.