Benefits and Limitations of the New FICO 9 Credit Score
Eileen St. Pierre, The Everyday Financial Planner
Earlier this month, industry versions of the FICO 9 credit score became generally available to lenders. Every few years, FICO updates its credit score models. This newest model is being hailed as a victory for consumers, since many will see their credit scores go up. However, not everyone will benefit.
The FICO 9 will now weigh medical debt in collections less than other debt in collections. The key words here are in collection. So those who win are consumers who, through no fault in of their own, have found themselves behind on medical bills.
- Consumers in this situation should see their credit scores go up around 25 points, provided this is the only negative reference on their credit report.
- Remember, medical bills don’t appear on your credit report until they go into collections.
- Older paid off or settled medical debts will drop off your credit report sooner.
- You still need to pay your medical bills. Just because they are not counted as heavily does not mean they will go away.
Consumers with little to no credit history (i.e., thin files) also win. If you don’t have much on your credit report, what you do have will have a huge impact on your credit score. The FICO 9 scoring model no longer puts “pay vs. don’t pay” in absolute terms. Various degrees of your payment history will now be quantified. Boy that sounds vague.
Lenders are not required to use the new score, or any credit score for that matter. It is unlikely the FICO 9 will be used for mortgages. Fannie Mae and Freddie Mac have their own standards, relying on the older FICO 4 model. It is expected that the FICO 9 will be used more for car loans and credit cards.
If credit scores tend to rise with the FICO 9 model, don’t be surprised if the benchmark for what’s considered a good score rises as well.
The Bottom Line
You still need to keep an eye on your credit report. Go to www.annualcreditreport.com for your free annual copy of your credit report from Equifax, Experian, and Transunion. Your credit report provides a much better picture of your credit worthiness than a simple number.