FICO Announces Changes to Credit Score Criteria
FICO, creator of one of the most commonly used credit score systems, announced several changes to the criteria it takes into consideration when determining credit scores.
One of the changes is that it will no longer penalize consumers’ credit scores for medical-related debt. Many consumers, who have otherwise clean credit records, have gotten heavily penalized for medical debt.
In several instances, consumers have been penalized for medical debt because of confusion as to what is covered by their health insurance.
FICO will also no longer penalize those who have paid debts to collection agencies. Its previous criteria penalized both paid and unpaid debt equally, but ignored debts under $100.
The change in credit score criteria could mean higher scores, 25 points in some cases, for consumers. FICO’s system ranks consumers’ credit on a 300 to 850 point scale, and is used by three of the major credit bureaus: Equifax, Experian and TransUnion.
Consumers who see a rise in their credit scores could also be offered loans with more attractive offers, according to credit expert John Ulzheimer of Credit Sesame.
Ulzheimer does not believe that the rise in credit scores will mean the difference between an approval and denial, however. Additionally, lenders will have to adopt the new credit score criteria in order for consumers to see a difference. Thus, it could be some time before consumers see a lasting impact with regards to their FICO credit scores.
For example, Fannie Mae and Freddie Mac are still using old versions of FICO’s credit score system, mostly due to the fact that they are using the old system in their underwriting software.