New FICO 9 Credit Score Assesses Thin Credit Files, Medical Debt

Mortgage & Real Estate









Fair Isaac Co. unveiled enhancements to its credit score model Thursday, including new methods for evaluating consumers with limited credit history and differentiating medical debt sent to a collections agency from non-medical debt.

Rather than classifying a consumer as someone who paid or didn’t pay his or her bills in absolute terms, the previously announced FICO 9 credit score quantifies the degree of severity that different types of debt have on a consumer’s payment history.

As a result, medical debt sent to collections—which consumers can unexpectedly incur after an illness—will have a lower impact on a consumer’s score to make it commensurate with the associated credit risk for a lender.

A Consumer Financial Protection Bureau report published in May found credit scoring models may put too much emphasis on medical debt that goes into collections and shows up on consumers’ credit reports, which may underestimate a consumer’s creditworthiness. The report also found that scores may not be crediting borrowers’ scores when they repay medical debt that has gone to collections.

The FICO 9 scoring model also has enhancements to allow lenders to better assess the risk of consumers with limited credit history, also known as thin files.

Fair Isaac will provide this new model to the credit bureaus in the next month, which will then start their own testing and verification process, said Anthony Sprauve, a senior consumer credit specialist with the Minneapolis-based company. Once that is done, the general scorecard will be made available to lenders.

The company is also now working on creating industry-specific scorecards, including one for the mortgage industry, Sprauve added. He did not have a timeframe on when this would be available.

The FICO score competes with VantageScore, which last year came out with a model it said enables users to formulate a score for 27 million to 30 million previously unscoreable consumers.

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