The Fair Isaac Corporation (FICO) has changed the way in which they calculate your credit score. The new credit scoring system, called FICO 9, went into effect in 2014. However, it wasn’t until banks starting using the new score in mass that Fair Isaac made the new formula available to consumers.
Let’s look at what changed, why it changed and what effect this may have on consumers.
Medical Collection Accounts
The biggest change is how FICO 9 treats unpaid medical bills in calculating your credit score. Those medical bills sent to collectors are now treated differently than a normal bill sent to a collector. Under FICO 9, unpaid medical bills sent to collection agencies will not ding your credit score as much as other non-medical collections. This change follows several reports (here’s one) from the Consumer Financial Protection Bureau (CFPB) regarding credit scores and medical debts.
The CFPB opined and Fair Isaac agreed that medical debts, even those unpaid and in collection, should be treated differently. And this reasoning makes sense. Medical debts are usually out of our control. And while consumers may willingly and carelessly overspend on credit cards, they are far less likely to be careless with medical debts. This is very good news for consumers, especially those whose credit is being hurt through no fault of their own.
Fair Isaac offered this explanation earlier this year:
“FICO® Score 9 differentiates unpaid medical accounts in collections from unpaid non-medical accounts in collections. FICO’s research found that unpaid medical accounts were less indicative of credit risk than unpaid non-medical accounts. In fact, building the most predictive credit score requires treating medical collections this way.”
Collection Accounts Paid In Full
A second major change is how FICO 9 treats collection accounts that are “paid in full”. FICO 9 doesn’t distinguish between medical or non-medical. While collection accounts naturally have a negative effect, the new FICO 9 formula completely disregards ALL collection accounts that have been paid in full. This change makes as much sense as excluding medical collections. Prior to this change, paying a collection account in full had absolutely no positive effect on credit score.
The last major change deals with rent payments. If your landlord reports your rent payment history, FICO 9 will use this to help calculate your credit score. This could be particularly helpful if a person is young and has a very limited credit history.
Where Can You Get Your FICO 9 Score?
Unfortunately FICO 9 is not as readily available as its predecessor FICO 8. Even though more banks have started using the new FICO 9, FICO 8 still dominates the credit world. You can go to www.myFICO.com and for a fee you can see your FICO 9 score. However, if you are interested in knowing your FICO 8 score, Discover Bank offers this free to anyone, even non-card holders. Simply go here and following the instructions. Other credit card companies also offer free access to your FICO 8 score, but you must be a cardholder. Here is a list of those companies.
Due to the continued pressure from the Consumer Financial Protection Bureau, more banks and financial institutions will adopt the new FICO 9 scoring model. As such, access to this new, more consumer friendly score, will become more readily available.
Cynthia T. Lawson is the Managing Partner of the Bond & Botes Law Offices location in Knoxville, Tennessee. She holds a Bachelor of Science from East Tennessee State University, and a Juris Doctorate from University of Memphis, Cecil C. Humphreys School of Law. She currently serves as a Mentor for the Moment in bankruptcy.Read her full bio here.