Many individuals will see their credit scores improve as a result of the latest software update from FICO (NYSE: FICO) that lessens the impact of medical debt on a consumer’s credit history.
The New FICO Score 9 differentiates from medical and non-medical collection agency accounts in efforts to ensure that medical collections have a lower impact on the score in proportion with the credit risk they represent.
FICO believes these updates will help lenders because they result in greater precision, while simultaneously, the median FICO Score for consumers whose only major derogatory references are unpaid medical expenses is expected to increase by 25 points.
Compared to previous versions, the new FICO Score 9 is believed to be more predictive of a consumer’s likelihood to repay a debt than previous versions by capturing recent consumer behavior to give lenders better risk assessment across the credit lifecycle and various credit products.
Additionally, Score 9 also enables lenders to better assess the risk of consumers with “thin files,” or those with limited credit history.
“FICO Score 9 uses a more refined treatment of consumers with a limited credit history and those with accounts at collection agencies, so that lenders can grow their credit and loan portfolios more confidently,” stated Jim Wehmann, executive vice president for Scores at FICO.
For example, rather than classifying a consumer as someone who either did or didn’t pay his/her bills, FICO quantifies the various degrees of that individual’s payment history.
“By applying innovative predictive modeling techniques on recent data to capture consumer credit behavior, FICO Score 9 ail extend FICO’s leadership in providing the credit score that most accurately and fairly defines U.S. consumer credit risk,” added Wehmann.
FICO Score 9 assess consumer credit risk across on mortgages, auto loans and personal loans, and can be used across the entire customer credit lifecycle, starting with marketing/pre-scree, originations and account management, all the way through early-stage collections.
“U.S. lenders can more consistently and precisely assess new applicants and existing accounts with a more robust credit score built on the most current credit data available, while minimizing operational hurdles associated with adoption and compliance,” stated Wehmann. “We stand ready to help lenders make that upgrade as smoothly and quickly as possible.”
Starting this fall, the FICO Score 9 will be available to lenders through the U.S. credit reporting agencies.
Written by Jason Oliva