FICO has changed their formula, and this time it looks like consumers will come out ahead. Improvements include the exclusion of paid collections from the score calculation, a reduction in the weight of medical collections, and more.
Paid Collections No Longer Hurt
FICO Score 9, which will begin a roll-out in the fall (which starts September 22nd), will include a couple of inspiring changes. The one that we are the most happy about is the elimination of paid collection accounts from the credit score calculation. This means that once a collection is reported as paid in full, with a zero balance, that account will no longer count against your score. Currently, paid collections continue to weigh against your score for some time after they are paid.
Medical Collections Reconsidered
Another logical and happy change to the formula is the reduction in the weight that is given to medical collections. The thought process here is that medical collections often appear without the knowledge of the consumer, the result of insurance shortfalls never disclosed to the patient in advance of appearing on the credit report.
Limited Credit Improvement
And lastly, FICO has announced a change to its method of assigning a credit score to those with limited credit. The implication is that there will be a more liberal approach to those who have little credit with no strikes against them. This makes sense in this improving economic environment where lenders desire to expand their portfolios.
Here are a few points worth understanding. New versions of the FICO model roll out slowly. Lenders can adopt the new model as they wish, sometimes taking years. Mortgage lenders, historically, have been very slow to adopt. It is expected that credit card lenders will be the very first on-board, so those with some credit issues may be pleasantly surprised to see some prime, low cost credit card offers arrive in the mailbox towards the end of the year.