Recent Updates to the FICO Model

Recent Updates to the FICO Model background

In August of 2014, changes were made to the FICO® credit scoring model, which was rolled out in the fall of 2014. These changes benefit customers burdened with medical debt and those paying off high interest credit card accounts. If the accounts are in collection or you are working with a debt resolution or credit card modification company, you can benefit. Borrowers with limited profiles are also being helped by the changes.

For those with paid off collections the new scoring system will no longer count the settled or paid off debt in its scoring algorithms. The debt will still remain on the credit report for 7 years after the debt is paid off, but once the account is settled or paid in full, it will no longer drag down your credit score.

Medical bills and medical collections are also addressed in the new scoring system. Medical debt is considered non-contract debt (meaning you did not enter into a contract to open a credit line) and therefore open medical collections will be weighted less than other types of collection accounts. Considering that nearly 50% of collection accounts come from medical bills, this is an important change for consumers. Once the medical bills have been settled or paid in full, they will no longer count towards the credit scoring model.

Those with limited credit histories is the last group that will benefit from the FICO® 9 Scoring model. FICO® must gather enough data on a client to determine their credit worthiness and assess risk to the lender. Those with limited histories often do not have any score at all. The new algorithms will enable consumers to establish a credit score earlier, even when there is limited credit information available.

One important note is that not all lenders use the newest scoring model. Mortgage companies are known to be slow at adapting to FICO® changes and many have not yet adapted the previous updates. Car lenders and credit card companies tend to be the first lenders to incorporate updates, but there is not a uniform way to determine who is using the updated model and which companies are not. As such you might find you are declined by one company and approved by another, based on these differences.

FICO® estimates that consumers with settled collection accounts or medical collections will see an average increase of 25 points to their scores.

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