DULUTH,MN-- Big changes are coming to how your credit score is determined it could have a negative impact on how you buy a car or a house and even rent an apartment.
Ashley Hagelin a Counselor Supervisor at Lutheran Social Services says credit scores have always been based on payment history, someone's use of credit, and credit behavior.
She adds, "Those kinds of things, those consumer behaviors have always played into your credit score. But now they're changing the formula and adding another component to that."
That new component, debt consolidation loans.
"They have multiple credit cards, it can get overwhelming. The multiple payments and so sometimes they look at a consolidation loan," she says.
For the first time ever FICO will be looking at those consolidation loans as an individual category which could result in a negative hit on your credit report.
Hagelin says, "So having that and then additionally having additional credit cards or racking cards back up will be a factor that can impact your score."
FICO will be going back as far as two years to see how you've used that personal loan.
They'll be looking to see if you used to it pay down high-interest credit cards or if you're still using plastic at the same rate and getting deeper in debt.
Using that metric to gauge your credit score.
"It's a reflection of that consumer behavior. If credit cards have been an issue, they build up, you take out a personal loan. And the pattern starts all up again that's going to reflect in your credit score," she says.
Of course, if you've not taken on any new debt your credit score will rise.
Hagelin says, "Your credit score tells a story, and your payment history tells a story."
But there's help out there if you find yourself in a pile of debt.
A debt management program.
"It's one way to get one payment, the interest rates down. But it's not an actual loan, you're still paying off your credit cards off," saysHagelin.
A way to eliminate debt in a timely fashion.
The new change could negatively impact as many as 40-million Americans it could have a positive impact on just as many.