FICO 9 Credit Score Modeling Changing

Fair Isaac Corporation, the entity which created and sets credit scores, recently announced it will make two key changes. For consumers, especially homebuyers, this is welcome news. What it means to you is a little more flexibility with your credit history, more particularly, improved accuracy.

The last change to the company’s proprietary modeling came in 2007-2008, the same period in which the Great Recession first took hold of the nation. During the ensuing economic downturn, many people were hit hard, some finding themselves unemployed, while others were scheduled for fewer hours, and the majority who remained at their job experienced wage stagnation.

FICO 9 Credit Score Fixing Consumer Challenges

Since the introduction of credit scores, lenders have used the measure to measure the ability for borrowers to repay their debts. When you apply for a home loan, the lender relies on the scores provided by one or more of the three credit bureaus: Experian, TransUnion, and Equifax. However, it’s estimated that some 40 million credit reports contain errors. What’s more, some 20 million files have errant entries that are sufficient enough to deny credit applications.

“Fair Isaac Corp. said Thursday it 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. 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.” —Wall Street Journal

Consumers, not the credit agencies, are the ones tasked with discovering and disputing inaccuracies. It’s your responsibility to periodically order your credit reports and review each for accuracy. A timely and frustrating venture, it can take months to see a dispute finally resolve in your favor.

Two Key Changes in Credit Reporting

There are some problems with the current structure which do great damage to your personal credit score. For instance, payment of past-due bills. Though paid-in-full, the black mark streaked across your credit file, lowering your score by as much as 100 points and remaining for as long as seven years. That, FICO has announced, will change and once a bill is paid-off, it will no longer negatively impact your score.

Another problem is the millions upon millions of people that have a medical collection on their files. The Wall Street Journal reports that 64 million consumers have such entries, which of course, adversely affects their scores. These are often the result of a denied insurance claim and you have little to do with that dynamic. Here too, the negative entry would remain, even after payment had been made. Now, the company states it will put less emphasis on such information.

With such changes in how credit scores are calculated, you’ll be able to get a home loan with better credit because the reporting will be more accurate.