Revamped FICO credit score might ease rates on consumer loans
WASHINGTON — The most widely used credit score is getting a makeover that could help millions of Americans qualify for better interest rates on mortgages, auto financing and student loans, saving them thousands of dollars.
Starting this fall, a new version of the FICO score no longer will factor in past-due payments that have been made or give medical debt as much weight in its calculations. Someone who has unpaid medical debts but whose credit history is otherwise good should see his or her score rise by as much as 25 points, according to Fair Isaac Corp., which is commonly called FICO.
Anyone who has applied for a line of credit or even an apartment knows how important FICO scores have become. The scores, which are based on a 300- to 850-point scale, are calculated using information from reports generated by the three major credit bureaus: Experian, TransUnion and Equifax. A recent study by research firm CEB TowerGroup showed that lenders used FICO scores in making 90 percent of consumer loan decisions.
Changes to the scoring model could make it easier for people to secure affordable loans that they can sustain over a longer period. But a vast majority of lenders would have to adopt the new scoring model for it to have a major impact on consumer credit.
In the five years since FICO last introduced a new model, just half of its customers have made the switch.
“It takes a long time for credit scoring systems to achieve critical mass. It takes years for lenders to gravitate from older versions to newer versions,” said John Ulzheimer, a credit expert at Credit Sesame, a consumer-credit website. “The changes will only help consumers inasmuch as the lenders they apply with actually use that new score.”
FICO decided to revamp its scoring model when lenders and regulators raised alarms about medical debts in collection dragging down the scores of people who were otherwise responsible borrowers.
The company said it studied two years of consumer data and found that unpaid medical debt was not a clear indicator of credit risk.
“People who had a good credit history, where an unpaid medical debt was their only negative, they were still good, reliable customers,” said Anthony Sprauve, a spokesman for FICO. “They're not going to default; they're going to pay their bills. The unpaid medical collections is an anomaly.”
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Pot doctors in medical marijuana states push boundaries with marketing
- ‘12 Days of Christmas’ items top $34K, up 0.6 percent
- New Navy destroyer Zumwalt’s seaworthiness questioned before sea trials
- Upstate New York town threatened by Arizona man in online post, reports say
- Iraq War veteran, mother of 2 slain in Colorado clinic rampage
- Hunt on for mother of baby buried alive in California
- Storm lingers in southern Plains
- Investors buy shares in college students: Purdue University thinks it’s wave of future
- Feds tell railroads they must meet deadlines for lifesaving technology
- Scandals leave Oklahomans in dark
- VA Phoenix social worker on leave for Halloween costume