Fair Isaac Corp. (FICO) is changing the way it calculates credit scores by revising its current credit-scoring system. The revisions could save U.S. Consumers billions of dollars when borrowing for mortgages or auto loans.
The two main criteria that are being closely examined, and are felt to have a significant impact on whether or not consumers receive loans, are overdue medical bills and payments that had been sent to collection agencies. In the past, situations like these can easily affect someone’s credit score; quickly putting them in a “lower tier” for borrowing. Now, the revision plans on looking closer at these two situations and reducing the negative impact is has on consumer’s credit scores.
Low credit scores are associated with situations such as overdue medical pills and payments sent to collections, but if the only criteria lenders are looking at is that credit score number, many consumers are going to be denied mortgage or auto loans. Also, even if these payments have been paid off, that consumers credit score is still going to be affected, just because that missed or overdue payment is on their credit history. With the new criteria set by FICO, lenders will now be examining those transactions and look beyond the actual credit score number, and more into if they have actually met their obligations.
With this new, extensive method of analyzing consumer credit reports, consumers will have an easier time when looking to borrow; especially since their scores can improve by about 25 points. Although this revision will put consumers with previously poor credit scores in a better position, it does not mean the difference between being approved or not; however, it is more so the terms on which you are approved.
This revision to the nation’s dominant credit-report system may improve the borrowing-position of millions of U.S. consumers. Although it will be very beneficial and save consumers billions of dollars, it may take a while for lenders to transition to this system to make the borrowing process easier. The wait may be long, but worthwhile in the long run.
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