Fair Issac and Company, the creator of one of the most widely used credit scoring models, FICO, said that the latest version of its score would no longer weigh medical debts. This is major, as medical debt accounts for about half of all unpaid collections on a consumers’ credit reports.
The newer FICO scores, available this fall, will also ignore any overdue payments that have already been made; previously, the scores factored paid and unpaid collections equally, though it ignored amounts under $100.
FICO credit scores, are based on the information in an individual’s credit reports, which are generated by the three major credit bureaus: Equifax, Experian and TransUnion. The scores are based on a 300- to 850-point scale.
Because of the new scoring model, individuals with a median score of 711 — and an otherwise clean credit history, except for unpaid medical debts — may see their FICO credit score rise by 25 points.
As a result, many consumers may qualify for more attractive interest rates on various loans, potentially resulting in thousands of dollars in savings. Those with low credit scores may now rise over a mortgage loan minimum score limit, potentially now allowing them to get a home loan.
Consumers whose credit files are tarnished only by unpaid medical debts that went to collection agencies, but were ultimately settled, or paid, are likely to see a much greater increase in their FICO credit scores based on the new FICO credit score model.