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FICO 9 Changes Helps Debt Relief Seekers
American consumers seeking Debt Relief Services will no longer have to worry about Debt Settlement or Debt Negotiation degrading their FICO Credit Rating. Fair Isaac (FICO) will now stop including any record of a consumer failing to pay in credit-score calculations if the bill has been paid or settled with a collection agency.
Many Americans seeking debt relief will now benefit from this major change in how the most widely used credit score in the U.S. is tallied will likely make it easier for tens of millions of Americans to get loans. FICO 9 will begin rolling out the new scoring model, named FICO 9, to credit bureaus this fall and to lenders later this year.
FICO 9 is major good news for debt relief customers!
- Jonathan, Manager – Beat Debt .info
New FICO Score to Improve Credit Score of Millions of Americans
FICO 9 ChangesFICO 9 to Boost Lending Without Creating More Credit Risk
In 2014, Fair Isaac Corp. FICO will stop including in its FICO credit-score calculations any record of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency. The San Jose, Calif., company also will give less weight to unpaid medical bills that are with a collection agency.
Lending Without Creating More Credit Risk
The moves follow months of discussions with lenders and the Consumer Financial Protection Bureau aimed at boosting lending without creating more credit risk. Since the recession, many lenders have approved only the best borrowers, usually those with few or no blemishes on their credit report. The changes are expected to boost consumer lending, especially among borrowers shut out of the market or charged high interest rates because of their low scores. ”
As of July, about 64.3 million consumers in the U.S. had a medical collection on their credit report, according to data from credit bureau Experian. And of the 106.5 million consumers with a collection on their report, 9.4 million had no balance - and won’t be penalized under the new credit-score system.
Under the current system, collections can impact credit scores as much as foreclosures and bankruptcies do. But the infractions are often small. Borrowers can be on time paying their debts, for example, but thrown by a medical emergency.
Collections stay on credit reports for as long as (7) seven years, even if a borrower has paid off that balance and remained up-to-date on other debts. Some experts have said the new model for FICO scores walks a fine line: It loosens standards without overstating the creditworthiness of borrowers. Fair Isaac said it ran studies to determine how likely borrowers are to repay their debts if they had a stellar credit record with the exception of such collections.
Consumers often are unaware that their insurance company isn’t paying a medical bill and can end up in default and in collection without knowing it, said a senior consumer credit specialist with Fair Isaac. In contrast, lenders often send repeated notifications to consumers to let them know they have fallen behind.
Revamped FICO 9 Changes
A revamped FICO score could boost bank lending and lead to savings for people who have debts in collection. Many lenders, including credit-card issuers, use the score as a measure of creditworthiness.
Most lenders check applicants’ FICO scores to help determine whether to extend credit to consumers and what interest rate to charge. Fair Isaac will begin rolling out the new scoring model, named FICO 9, to credit bureaus this fall and to lenders later this year.
More than half of all debt-collection activity on consumers’ credit reports comes from medical bills, according to the Federal Reserve. Such activity results in lower credit scores for consumers, meaning that lenders are more likely to be cautious in extending credit.
The number of U.S. consumers struggling with medical debt has been surging. As of 2012, 41% of U.S. adults, or 75 million people, had trouble paying medical bills, up from 58 million in 2005, according to a report released last year by the Commonwealth Fund.
The CFPB, in a May report, criticized credit-scoring models used by the financial industry, saying they put too much emphasis on unpaid medical debt and lead to an overly negative view of consumers. CFPB officials say that medical debt is inherently different from other forms of debt because consumers are often unaware of what they owe to hospitals and doctors.
The impact of the changes on borrowers is likely to be significant. Accounts that are sent to collections, including credit-card debts and utility bills, can stay on borrowers’ credit reports for as long as seven years, even when their balance drops to zero, and can lower their scores by up to 100 points, said Mr. Ulzheimer.
Even a small move in a borrowers’ credit score can change the outcome of a loan application. Most lenders have a minimum credit-score requirement to lend to an applicant, and lenders can deny someone whose score is even one point below the minimum.
Lenders determine the interest rate a borrower will get based on the borrower’s credit-score bracket.
For example, borrowers with a FICO score between 760 and 850 get an average interest rate of 3.823% on a fixed-rate, 30-year mortgage of $300,000, according to Informa Research Services, a market-research company in Calabasas, Calif.
Borrowers with a 759 FICO score get a 4.045% interest rate on the same loan. Over the life of the loan, the 760 borrower would pay $204,650 in interest charges—or $13,764 less than the 759 borrower.
—Alan Zibel contributed to this article.