FICO scores that range from 300 to 850, are the industry standard for measuring the risk of consumer credit used by lenders to determine creditworthiness of a consumer, or how you are likely to repay a loan.
What are these updated?
Starting this fall, the new calculation, which is called FICO Score 9 will differentiate medical from the accounts for non-medical collection agencies and not include unpaid bills that have been paid or settled with a collection agency, according to the press release of FICO. This means that your credit score will not be negatively impacted by unpaid medical bills or unpaid bills that have been settled in collections.
What is the point of these updates?
The updated calculation of FICO credit scores are designed to ensure that medical collections have less impact on scores, which will help lenders obtain a more accurate representation of a habit consumer credit, since anyone can be a victim of large amounts of medical debt. In addition, these updated scores are also intended to produce a more accurate prediction of the likelihood of a consumer to repay a debt - like a mortgage, car loan, credit card or personal loan -. By not allowing set an unpaid debt to the impact scores
How the FICO credit score changes benefit me?
Although the FICO credit score update may not have a huge impact on debts without consumers settled in collections or unpaid medical bills, it has three advantages to people who have these types unpaid bills.
1. Higher credit ratings: Since the medical and non-medical debt will be differentiated, this means that anyone with a high amount of medical debt can expect a slight increase their scores. According to FICO, a consumer who is just big derogatory references are unpaid medical debts is provided a credit score increase of 25 points. While this may not seem like much, it can be just enough to knock someone to the highest level of credit. For example, a person with a good credit rating before the change could be bumped up very good, depending on what their score was redesigned before the calculation.
2. Increased availability to credit: Due to more accurate and higher credit ratings, consumers with medical debt and unpaid debt settled in collections will greater availability of credit to them. This means they will have more options when they seek to open a new credit card.
3. The lower interest rate: In addition to having more credit available to them, consumers affected by this change will probably pay less money in rates interest because they have a higher credit rating, which is one of the main factors to determine the interest rate you pay on a loan or credit card.
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