New FICO credit scoring changes: What to do now to avoid negative credit later

NEW YORK -- It may soon be harder for many of us to get loans and open new credit.

FICO, the system which calculates credit for roughly 110 million Americans, is changing the way it assigns scores, making it tougher to score higher if you've missed payments or have rising debt.

But there is something you can do about it before the changes sink your score.

FICO 10 is going to look at risk factors at a lot more harshly including factors like rising debt levels and whether or not you have had a history of falling behind or missing payments.

The good news is, we all have time to do some personal finance housekeeping before we get negatively impacted. It begins with paying down debt.

Debt solutions lawyer Leslie Tayne says the first step to increase credit-worthiness is to decrease debt ratio.

"You want to positively impact your score," Tayne said. "Make more than the minimum payment, start making an extra payment if you can. If you have a credit card with a $10,000 limit, you should carry a balance of no more than $3,000. Utilizing just 30 percent of your available credit will earn you a gold star."

The new FICO scoring model will assess how consumer debt levels have changed over a longer period of time, by adopting a two-year look-back as opposed to just the history in recent months.

This will reward those who have managed loans well with higher scores, but will lower the score for consumers with a history of missed payments, late payments and other black marks.

That's why it so important to start cleaning up your credit now.

Pull your credit reports. It's free. If you see an error, the first step to correcting it is to contact the credit bureau by phone or email, and get confirmation of the error in writing.

Next, send a letter proving the error to the credit bureau by requesting a return receipt so you have proof the letter was delivered.

Be patient. It usually takes about 30 days for an investigation to be completed and for any changes to be made.

Lenders will have a choice on whether or not to adopt FICO 10's new scoring model.