FICO's new scoring matrix may spruce up credit reports

FICO is tweaking its scoring model in a way that may benefit borrowers. 

The latest model of the score will not weigh medical debts or previously unpaid - but now paid - debts into the new the scoring matrix, The New York Times reported. These bills account for nearly 50 percent of all unpaid collections that wind up consumers' reports. The new FICO scores will be available this fall. 

"We found that for someone where medical collections is their only derogatory, it is not as negative as a regular unpaid collection would be," said Anthony Sprauve, a FICO spokesman. "So we adjusted the algorithm."

However, the new score may now be the difference between rejection and a new loan. The debutante scoring system has the potential to make a new loan easier, with the added bonus of lowering interest rates on credit card owners' loans, according to Times. 

FICO spoke with many of its largest customers - such as large institutions, in addition to regulators - who suggested to the credit score-calculator that medical debt collections were an unnecessary burden on consumers' credit scores, the New York Times reported.

Why the new scoring model matters
The FICO credit score has become essential in consumer access to just about anything - rentals, loans and mortgages. The scores are used by credit bureaus to produce the credit reports used by the majority of lenders to determine a borrowers' financial responsibility. An easing of the stringent calculations model is sure to be a benefit - albeit on a small scale - to those in need of an extra boost in their score. 

"Getting sick or injured can put all sorts of burdens on a family, including unexpected medical costs. Those costs should not be compounded by overly penalizing a consumer's credit score," said Richard Cordray, director of the Consumer Financial Protection Bureau. "Given the role that credit scores play in consumers' lives, it's important that they predict the credit worthiness of a consumer as precisely as possible."

Credit scores are based on a 300 to 850 point scale, explained The New York Times. Based on FICO's approaching model someone with a credit score of 711 can see their score increase by up to 25 points in they are financially responsible - regardless of medical debit circumstance.

Other's have already tweaked their scoring models. VantageScore - a joint venture of the three major bureaus - in January it would ignore collection actions on credit reports - as long as they were paid. Lenders will have to begin using the model in order for borrowers to see the difference though. FIFCO's last model, FICO 8, was released in 2008 and is used by merely half its customers utilize the model.

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