According to the Fair Isaac Company, FICO recently released a brand new variation to it’s FICO credit scoring model. FICO Score 9, FICO Auto Score 9, and FICO Bankcard Score 9 have all recently hit the market and although adoption of the new algorithms is so far very limited, we can assume that over the course of the next few years more and more lenders will start using this new scoring model. So let’s take a look at this “new generation” FICO score and the impact that it will have on your ability to get credit.
What’s New With FICO Score version 9?
One big change to the new version of the FICO score is that it no longer takes paid collections into account when scoring your credit. Previously, a paid collection would still be considered a red mark on your credit report and lower your FICO score but, the new version of the FICO 9 score does not score PAID collections. Therefore, if you paid off a third-party collection, no matter whether it’s $5 or $50,000, it will not have a negative impact on your FICO 9 Score.
NOTE: 90% of credit borrowing decisions are calculated using the FICO score but, most lenders are still using older versions of the FICO scoring models which take paid collections into account which still lower your credit scores.
Another significant change to the new FICO score is that it scores medical collections differently from other collection accounts. In previous models, all collection accounts were scored the same whether they were for charged-off credit cards, utility bills, or medical bills. The new scoring model from FICO treats unpaid medical collection accounts differently than other types of unpaid collections. If you have unpaid medical collections on your credit reports, they will have less of a negative impact on your new FICO score than other unpaid collection accounts.
Finally, in order to help consumers with very a limited credit history, FICO version 9 includes a new algorithm used for scoring rental history. When reported, your rental history factors into FICO 9 score by taking a comprehensive view of your rental paying history. This should help millions of Americans who pay their rent but, don’t have a credit score, get a fair assessment of their creditworthiness.
Ultimately, it may take years or even decades for this new scoring model to be fully adopted by the lending industry or it may never happen altogether but, it’s nice to know that the powers that be are working on making lending a much more fair and accurate assessment of a consumer’s creditworthiness.
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