FICO Loosens Scoring
Certain debt-collection activities, medical debts, will no longer affect score quite as heavily as they did
rs of the oft-dreaded FICO score, recently announced that it will stop using what it calls "certain debt-collection activities" when it calculates individual scores. For example debts that go to collection agencies and get repaid will no longer effect FICO scores.
In addition, Fair Isaac said that medical debts will have a smaller effect on its scoring criteria.
The company calculates its scores, which range from a non-credit-worthy 300 to an A-paper-worthy 850, from data in credit reports. The company groups the data into five categories: payment history, amounts owed, length of credit history, new credit and types of credit used. The company puts the most weight on payment history and amounts owed.
Federal law prohibits Fair, Isaac from taking race, color, religion, national origin, sex and marital status into account when calculating its scores. Salary, occupation, title, employer, date employed or employment history are also not issues that FICO considers. However, that does not prevent lenders from looking at these factors.
Steve Brown, National Association of Realtors’ president, praised the move. "(This) will ultimately make a real difference in the lives of millions of Americans, who have been shut out of the housing market or forced to pay higher mortgage interest rates because of flawed credit scores," he stated in a press release.
Fair Isaac said that it expects to put the changes in effect sometime this fall.