FICO SCORE 9: 3 WAYS THIS CREDIT UPDATE COULD AFFECT YOUR SCORE

by Elyssa Kirkham

Fair Isaac Corporation (FICO) announced it will be refining how it calculates credit scores with the release of its upcoming FICO Score 9, according to a press release from the company. The latest updates aim to give creditors a more accurate risk assessment of borrowers.

“FICO Score 9 uses a more refined treatment of consumers with a limited credit history and those with accounts at collection agencies, so that lenders can grow their credit and loan portfolios more confidently,” said Jim Wehmann, executive vice president for scores at FICO.

FICO Score 9 will be available to lenders starting this fall.

3 Ways FICO Score 9 Could Improve Your Credit Score

With FICO as the leader of credit risk scoring used in 90 percent of all lending decisions in the United States, according to the press release, this update has the potential to raise credit scores and positively impact many consumers. These changes will lower the negative impact that derogatory marks can have on a consumer’s credit score meaning these changes would likely result in an improved credit score for affected consumers.

The update includes three major changes to the FICO score aimed at making it a more accurate representation of a consumers’ likelihood to repay debt.

1. Paid Debts Won’t Count Against Your FICO Score

Any records of late or unpaid bills that have since been paid or settled with a collection agency will be removed from one’s score immediately, reports The Wall Street Journal. For consumers who have had collections posted on debts, this mark previously remained on a credit report for seven years even if the borrower paid it in full and remained current on all other payments. Now, collection marks against a consumer will be removed once the balance is settled and the debt repaid.

2. Unpaid Medical Debt Will Have a Smaller Impact on Your Credit Score

FICO will now differentiate unpaid medical debt from non-medical debt and how it affects a consumer’s score. According to FICO, “This will help ensure that medical collections have a lower impact on the score commensurate with the credit risk they represent.”

FICO estimates that a consumer for whom medical debt is the only major negative mark on his credit report could expect to see a credit score improvement of around 25 points once the new standards are implemented.

3. More Accurate Scores for Short Credit Histories

A scant or short credit history usually means a lower credit score even if the consumer stays current on all debts and pays on time. This might not be a fair representation of the risk of lending to a certain borrower, however.

To address this issue FICO reports, “FICO Score 9 also supports the desire of lenders to better assess the risk of consumers with limited credit history – so-called thin files.”

© 2014 TLC Magazine Online, Inc.