Finance & Enjoyment Blog

Denver Accountants Share Changes to Credit Scores

Our Denver Accountants at KKB are always dedicated to providing as much industry information as we can to our clients. A recent change to the widely used credit score may make it more likely for struggling consumers with low scores to obtain loans.

Under this new change, Fair Isaac Corporation’s newest FICO® model will change certain aspects of how a credit score is calculated on an individual’s credit report. The changes come in the wake of discussions with lenders and regulators looking to find ways to increase consumer lending without creating additional credit risks.

Here are some changes included in the FICO Score 9 formula:

* Any debt that has been repaid or settled with a collection agency will not be included in a consumer's credit score calculation

*Medical debt that is in collections will have a smaller effect on a consumer's credit score. More than half of collections on credit reports are related to medical bills.

* The scoring formula will incorporate new techniques to better assess the risk of consumers with limited credit histories

Consumers will see this change happen in the fall of 2014. However, it is up to individual lenders whether to accept these new changes. Some customers will see a FICO Score increase of up to 25 points, which will help consumers qualify for better interest rates from lenders.

Fair Isaac Corporation isn't the only credit scoring company that has adjusted the calculations for its credit scoring formula. A lesser known company, VantageScore Solutions, already has a credit scoring formula that does not include paid collections on its credit reports. Other credit scoring companies may follow suit and make adjustments to their credit scoring calculations.

How to use this information

This new change will impact consumers’ medical debt. Many times consumers don’t know when or if their medical bills have gone into collections. Unpaid medical expenses will still show up on a credit report for up to seven years, but under the new credit score change, this debt will not damage their credit as it has in the past. For more information on this new change and how it may affect your practice, contact us at 303-815-1100.

What do you think of the new credit score changes?

Posted in Your Financial House »

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