Changes to FICO Score - FICO 9 Release
Ways FICO 9 Could Boost Your Credit Score
Last Updated: February 25, 2016
Whether you’ve exhausted every possibility for cleaning up your credit, or you’re just getting started, FICO 9 was made available in Fall 2014 and could go a long way toward furthering your goal.
If you pay debts that are in collections, they no longer count negatively against your score.
One of the most frustrating aspects of the previous FICO scoring model was failure to reward consumers for paying off debts that had previously been in collections. Even though they were paid and resolved, the debts continued to count as a mark against your credit score. That is now a thing of the past.
Under FICO 9, you are no longer penalized for debts in collections once you have actually paid them. That said, before you go paying off all your unpaid debts, do yourself a favor and go through the debt validation process first.
The more times your debt has been sold from one collector to the next, the less likely that supporting documentation has changed hands. And if the debt collector cannot prove you owe the debt, you are not legally required to pay it AND it must be removed from your credit reports.
Note, debt validation is an especially effective tool for old credit card debt.
If you have unpaid medical debt, it no longer counts as negatively as other types of unpaid debt.
In a study of consumer credit reports over 2 years’ time, the Consumer Financial Protection Bureau (CFPB) discovered that consumers with unpaid medical debt are more creditworthy than the previous scoring model gave them credit for.
- Consumers with more medical than non-medical collections had observed delinquency rates that were comparable to those of consumers with credit scores about 10 points higher.
- Consumers with more paid than unpaid medical collections had delinquency rates that were comparable to the rates of consumers whose credit scores were roughly 20 points higher.
In response, FICO 9 now considers unpaid medical debt as less important than other types of unpaid debt. In fact, if the only negative debt weighing down your credit is of the medical variety, you could see your score go up as much as 25 points.
If you don’t have much credit history, there’s a new technique for projecting your creditworthiness.
It’s unclear what this technique is, but FICO 9 evidently has a new and improved means of giving credit where credit is due regardless of your credit history.
On the whole, what all of this adds up to is a win-win situation for consumers and lenders alike.
FICO boasts that more people will fall into higher score ranges, increasing the number of consumers that lenders can extend credit too.
That said, consumers may be harder-pressed to guard against taking on more debt than they can handle. Certainly, a higher FICO score is something to be celebrated and taken advantage of in the form of lower interest rates, but always within the larger goal of staying as debt-free as possible.