As a consumer, understanding your FICO score is a useful tool to improving your credit. FICO is the most common credit scoring model used by creditors and lenders to make a decision on whether or not to lend you money. Because the lending industry is constantly changing, your FICO score needs to evolve too.
Introducing FICO 9
To accommodate this ever changing financial industry, FICO updated its model and introduced FICO 9. This scoring model allows consumers with significant medical debt to improve their score. According to the credit reporting industry, over 60 million American consumers are living with medical debt and some type of notation on their credit report. Medical debt can cause serious damage to your report and your score.
Problems With The Old Credit Scoring Model
The purpose of a credit score is to give lenders an idea of whether or not you are a credit risk. While a lender certainly can review your report to aid in its decision on whether or not to lend you credit, reviewing a number is a much faster, easier way to make this decision. Because large amounts of medical debt can damage your credit score, if a lender is only looking to lend money based on your score without looking at your report as a whole, it is more than likely you would not be approved. Because experts feel that medical debt should be considered separately and that consumers were being punished for this type of debt when it was not a fair indicator of whether or not a consumer was likely to repay, FICO 9 was created to solve this dilemma.
What FICO 9 Changes
In FICO 9, medical collection accounts will be considered differently when calculating a consumer’s credit score, than non-medical debt. The FICO 9 scoring model supports the exclusion of medical debt for a few reasons. First, in the recent past, many consumers could not receive quality health insurance, making it virtually impossible for the average consumer to pay down any medical procedures or even doctors visits. Second, even the most responsible consumer can get stuck with a medical collection that they were not aware of, i.e. not making a co-payment at time of service. Third, when more than one visit to a doctor or hospital or medical emergency ends up with a hefty sized deductible, the average consumer cannot afford to pay and ends up in collection on your report.
Eliminating medical debt from your credit score with FICO 9 will mean more available credit and better rates for a much larger group of consumers. If you believe your rights have been violated under the Fair Credit Reporting Act and would like the advice or assistance of counsel, contact SmithMarco P.C. for a completely free case review.