Think You Know It All About FICO Score 9? Think Again!

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A closer look at what’s new in FICO score 9 and its impact on Medical Debt

Millions of Americans pay more than they should for mortgages, credit cards, and other debts; thanks to the unpaid medical bills. The scenario, however, is slowly changing after the introduction of the medical-debt-friendly FICO Score 9. Thirty one states in the US have entered into a joint agreement with Equifax, TransUnion and Experian; to introduce changes in the reporting and treatment of consumer credit data including medical debt. When most people face the common question ‘how to improve my credit score’, they need to know how FICO Score 9 will impact the medical debt to benefit consumers, and how the new scoring model is more beneficial for the lenders.

What is FICO Score 9?

Termed as “the most predictive FICO Score to date“, FICO Score 9 aims to improve the way lenders assess the collection information and assessment of the consumers with a limited credit history. FICO Score 9 is more predictive about the likelihood of whether a consumer will pay off a debt as compared to the previous scoring models. The new scoring model has been designed to focus on the diverse scoring needs of the lenders and the borrowers.

Impact on Medical Debt and Benefits for Consumers

The adoption of FICO Score 9 gained traction and made medical debt an extremely important issue. It is believed to introduce some fundamental changes in the way medical bills impact the financial lives of the citizens of the US. A recent research however, reveals that unpaid medical debt doesn’t mean that the consumer has a bad credit risk according to FICO. It has also introduced two sets of variables in the FICO Score 9 algorithm:

  • The first set evaluates unpaid medical collections
  • The second set evaluates unpaid non-medical collections

The introduction of the two variables will assure that the unpaid medical collections have a lesser impact on the FICO Scores than the unpaid non-medical collections. FICO Score 9 considers the consumers with unpaid medical debt to be less risky than consumers with unpaid non-medical debts.

Benefits for Lenders

FICO Score 9 has a new scoring approach to assess consumer collection data that gives a clearer picture of the credit risk of the consumers. Here are some new factors that have been added to the scoring model:

Scorecard for Consumers with High Revolving Debt

Consumers with high revolving debt are considered at a higher risk of filing bankruptcy. FICO Score 9 breaks this group out separately to predict bankruptcies and other delinquencies in a better way.

More Refinement for Consumers with Limited Credit History

Lenders are often unable to effectively assess the risk of customers with limited credit history. FICO Score 9 provides improved risk predictions for such consumers to the lenders.

Exclusion of Paid Collections Debt

FICO Score 9 ignores paid third-party debt collections with the aim to improve the risk prediction.

Inclusion of Non-traditional Trade Line Evaluations

FICO Score 9 considers rental trade lines to give a more comprehensive view of the consumer’s credit history to the lender.

Differentiation of Medical and Nonmedical Collection

The new score model treats unpaid medical debt differently from other debts. Many individuals may not be aware of the fact that the subtle change when introduced has the likelihood to boost their credit score immediately by 25 points, if the only debt showed in the credit report is the unpaid medical bill.

When to Expect Changes in Credit Report?

The time period by which changes start to reflect on your credit score depends on how soon the lenders adopt the new scoring model. It may take lenders some time to understand FICO score 9 and calculate if it is worth introducing in the process. Even the housing finance giants such as Freddie Mac and Fannie Mae for instance, continue to use the versions older than FICO 8. Some of the technical and smaller changes required for settlement will be implemented this September. The suppression of medical debt entries paid by the insurance companies will be implemented by 2016.

The important change related to a thorough review of customer disputes and a 180-day delay in reporting medical debt, are unfortunately not required until June 2018. FICO formulas are like software updates that require time to be implemented, but whenever they do, it is estimated than 15 million Americans with medical debts in their credit reports will be the most benefited from the model.

Should you wish to learn more on the subject, get in touch with one of our credit management experts for a no-obligation free consultation.