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Blogging for Change Blogging For Change
by Jesse Campbell on August 11, 2014

Important credit scoring changes and what they mean to you

Last week the nation’s most widely used credit scoring model got a reboot and the result may be a generous boost to your credit score.

FICO announced the launch of FICO Score 9, their updated credit scoring model. The most notable changes involved collection debt and the impact of that debt on your FICO score.

Medical Debt

The first change regards medical collection debt – hospital and doctor bills that have gone unpaid and then sent to either an internal collection department or a third party collection agency. Previously, these medical collection debts impacted your score in the same way as unpaid credit card or loan accounts.

Medical debt, however, is rarely related to reckless spending or poor credit management. Literally anyone, in any walk of life, can be quickly overwhelmed by out-of-control medical bills.

Recognizing that unpaid medical debt is not a clear indicator of a borrower’s ability or intent to repay future debts, FICO has refined their scoring. Now unpaid hospital bills have a significantly reduced impact, in relation to unpaid credit or loan bills.

Paid Collection Debt

The second noticeable change in the FICO Score 9 has to do with debts that have gone to collection and then been paid in full. Generally all negative marks in your credit history remain on your report for seven years. If you have an account that went unpaid, your score would be impacted by that negative event. Your score would likely improve if you paid that debt off, but the collection account would continue to show on your report and impact your score for seven years.

With the revisions included in FICO Score 9, collection accounts that are paid off are no longer factored into your current credit score at all.

This is a huge change and puts a very clear value on taking care of old, lingering collection debts.

Potential Impact

There are a number of different credit scoring systems used by lenders, so there’s no guarantee how these changes will impact your next lending decision. It should be noted, however, that FICO is currently used by approximately 90 percent of lenders to help make lending decisions.

There’s no way to accurately gauge how these changes will directly impact you and your score. That said, FICO estimates that the median credit score for those whose only derogatory mark is unpaid medical debt could increase as much as 25 points.

The basics of building solid credit remain, so how you use credit shouldn’t change. But if you’ve been hit hard by unforeseen medical issues, this means you should have a slightly easier time recovering financially. And if you have unpaid collection debts you may want to consider getting those paid off.

Comment(s)

Laurence J Esposito says:
August 14, 2014

This is good news indeed. After using Money Management International, every time I would attempt to rent a new apartment, I would be asked about it by the renters because it shows up negatively on credit reports. After explaining how I used Money Management International, I would then say, "Isn't it a good thing that I took care of my debts this way in the long run?", which they then realized was indeed a wise and responsible choice on my part to handle the debt that I had accrued. I am grateful to Money Management International for helping me resolve my debt problems in a speedy manner. I have since learned a great deal about how to keep credit in check and watch my spending.



Linda says:
August 14, 2014

When will these go into effect? The only thing that I had were a couple of medical bills that I am paying off monthly but I think reported negatively.



Patricia Burman says:
August 14, 2014
Website: money management

if a person dies while haveing outstanding loans who is held responsable...If another person's name is on one of credit cards can they be held responsable for that balance.



Patricia Cook-Salinas says:
August 14, 2014

This is great news. I've dealt with Multiple Sclerosis for 30 years. My medical expenses only go up. Through discipline and hard work, I am using a cane now. My doctors say I should have been in a wheelchair 15 years ago. My out-of-pocket medical expenses range from $12,000 to $18,000 a year. Being on SSLTD makes it difficult to pay my medical bills and I have medical insurance. I am on my own.



robert says:
May 19, 2015

This rob my question is when your credit debit credtor is finish with payments can restore your credit card back



Wendy Miller says:
August 15, 2014

What do I do to ensure this happens?



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