FICO Scoring Changes Will Raise Some Credit Scores

The impact of delinquent medical bills will be reduced. Debts that had been referred to collection but subsequently paid off will be treated as though they were never referred for collection.

Palm Coast, FL – August 12, 2014 – Credit rating company Fair Isacc Corp (FICO) will be changing the way consumers FICO scores are calculated this fall, though it may be months or years before the changes filter down to many of their customers. Lenders are traditionally slow to adopt new scoring systems. For instance, Freddie Mac and Fannie May have yet to adopt the last FICO change made five years ago.

The changes should translate to lower interest rates for many seeking mortgages, student loans or car loans.

The changes that will affect most people relate to unpaid medical bills and to accounts that were turned over to a collection agency but subsequently paid. Unpaid medical bills will be treated differently under the new system if the individual’s credit history was otherwise positive. According to the Federal Reserve, more than half of all unpaid debts referred for collection are medical bills.

The other change will be to treat accounts that were referred for collection but subsequently paid in full as if they had never been referred for collection.

The FICO credit scoring model, using a range of 300-850, is the dominant one used by U.S. lenders. Despite the emergence of alternate credit scoring models in recent years, the FICO system is used in 90 percent of U.S. lending decisions, according to the Fair Issac Co.

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