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FICO 9

Medical Bills


The big change is how FICO 9 teats unpaid medical bills. The FICO 9 formula treats medical bills sent to collections differently than other debts. These debts won't ding your credit as much as non medical debts send to collection. The change follows studies by the consumer Finance Protection Bureau.


This change is sensible. Medical debt is often for things outside of our control. Consumers may overspend on vacations and electronics but are less likely to be addicted to emergency room visits.


FICO 9 differentiates unpaid medical accounts in collections from unpaid non-medical accounts in collection. FICO's research found that unpaid medical accounts were less indicative of credit risk then unpaid non medical accounts. In fact, building the most predictive credit score requires treating medical collections this way.


Paid Collections


A Second significant change with FICO 9 is the score's treatment of paid collections. When a debt is sent to collections, it understandably hurts a consumer's credit score. The new credit score formula, however, disregards any collections matters that the consumer has paid in full.


Rent Payments Will Count


A final big change deals with rent payments. Under FICO 9, rental payment history is factored into the score when a landlord reports the payments to a credit bureau. This change can be particularly helpful to those with a limited credit history.


Dispite all excitement Surrounding FICO9, its not the most widely used FICO formula. That honor still belongs to the earlier version, FICO 8. Why?


There may be several reasons. First its expensive for a bank or lender to change their underwriting process. Financial institutions no doubt undertake substantial testing of any new scoring model, and this takes time and money. Second, they may be perfectly happy with FICO 8. As they say, if it ain't broke, don't fix it.


Here are the things to remember


FICO itself is not a credit reporting agency.

FICO Primarily makes money by licensing their credit scoring model to credit bureaus.

FICO Is by far the most widely used broad-based risk score

FICO uses information provided by one of the major credit reporting agencies Equifax, Experian or Transunion to create the FICO score.


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