The release of a new FICO scoring system was initiated earlier this month. With anxious consumers awaiting the benefits of the new system, more information is rising that could prove to be a disappointment to consumers.
New System, New Score
The FICO 9 scoring system was launched for testing on the first of September. The changes in the new system are said to benefit many, especially those with medical debt. Until this new scoring system, outstanding medical debt and paid off balances that were once in collections both shared a hefty weight in a credit score. In the FICO 9 model, less emphasis will be placed on outstanding medical bills and paid-off balances from old collection accounts will be ignored. This means that consumers that are being drug down by their medical debts should see an increase in their score, or at least be able to avoid further damage over these types of credit marks. Sounds like a win, right?
Unfortunately, these new changes aren’t expected to help medical debt-plagued consumers when it comes to qualifying for a mortgage loan. The majority of mortgage lenders evaluate a borrower under the FICO 4 model, which leads to a very conservative approach to lending approvals. Industry experts suggest that a mortgage lender is highly unlikely to adopt a credit scoring system that ignores old collection accounts or large balances, even if they are medical related.
The take home message for consumers is what you see isn’t always what you get. While you may be seeing one score, some lenders have a completely different view of your financial profile because their calculating system is different than others.