What the newest credit scoring model means for you


FICO – probably the nation’s most prominent credit score provider – revealed the details of their new FICO 9 scoring model all the way back in 2014. Lenders have been slowly adopting the new model over the past two years and now it’s finally available to the public, should you be interested. So what does this mean for you?

In the short-term? Maybe nothing. FICO 9 is just one of many scoring models, and its usage still pales in comparison to the much more widely used FICO 8 that preceded it. You can’t control what score a potential lender will use, so your best bet, as always, is to continue using credit wisely, avoiding missed payments and using too much of your available credit line.

In the long-term, however, FICO 9 will eventually replace FICO 8 and hopefully some of the key changes in FICO 9 will be adopted by other scoring models, especially as those changes are all pretty consumer-friendly.

Reducing the impact of medical debt

Remember that the purpose of a credit score is to help lenders assess risk. A consumer with a low credit score is considered to be riskier from a lending perspective because they’ve (theoretically) not demonstrated an ability to successfully manage credit. There’s probably a good deal of truth to that if the reason your score is low is because you’ve missed payments or overextended yourself. But what if you had an unexpected medical emergency?

FICO 9 reduces the negative impact of medical collection debts by differentiating them from other kinds of collection debt. Being hospitalized, after all, doesn’t have much to do with whether or not you know how to wisely manage your credit. That’s a key change that should help consumers in the recovery process following a major medical event.

Using rental payments to build a positive history

Timely and consistent mortgage payments have a positive impact on your score. Traditionally, however, timely and consistent rental payments have had no impact on your score whatsoever. FICO 9 changes that by incorporating your rental payment history into your scores calculation, which could potentially go a long way towards helping young consumers build a positive credit history. Keep in mind, however, that this only matters if your landlord actually reports your payments to the credit bureaus.

Disappearing collection debt

FICO 9’s final change may have a significant impact on how you think about repaying old debts. Under this scoring model, collection debts that have been paid in full are no longer factored into your score, which gives a great incentive to clear those debts if you’re able, rather than simply waiting them out.

Just because the collection account is not factored into your score, however, does not mean that the account will disappear from your credit report. It will still remain visible until seven years have passed. Additionally, all negative marks for missed payments leading up to the account going to collections will remain, again until seven years have passed.

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.