There are about to be some rather large changes in how credit scores are reported through FICO that could affect your credit rate. In fact, these changes could make your credit score better.
Fair Isaac is the name of the company that created the FICO credit scoring system. They have just released a new software to calculate FICO scores called FICO 9, and the formula used is different, meaning that beginning in Fall 2014, individual borrowers looking for mortgages will find themselves in a slightly better position.
So, what’s different about FICO 9? Well, it discounts, or in some cases completely ignores, certain types of debt. Right now, all collections, whether paid or unpaid, are factored into your credit score. the new system will ignore all debts that have been paid even if they went into collections at one point. In addition, unpaid or defaulted medical debt will not be taken into consideration as harshly as it has been.
Unpaid medical bills in collections will still appear as a negative on your report, however. Ignoring paid collections means that those that have actually paid outstanding debts will not continue to suffer a lowered credit score from those particular debts. Also, those who have been penalized in the past for medical collections, such as hospital or surgery bills, could see their score rise as much as 25 points.
It will take about a year for all updates and data to be applied to everyone’s individual credit scores, but borrowers should know that in the very near future they can expect a boon when they apply for a mortgage. The higher your credit rating, the better interest rate you’ll receive, and the less of a risk you’ll appear to a lender.
If you have any questions about the new credit reporting standards, I’d be happy to help. Just give me call.
