Erin Lowry writes for Daily Financce. Below is an excerpt from a recent article:
FICO (FICO) –- the company behind credit scores -– announced an unprecedented change to its scoring model: FICO Score 9 will change the way in which paid collection agency accounts, unpaid medical bills and non-medical bills impact a score.
What are the Changes?
Under the current model, a collection generally stays on a credit report for seven years -– even if it is paid off. Now, consumers will see their paid collections being removed from their credit reports.
According to The Wall Street Journal, of the 106.5 million consumers with a collection on their report, 9.4 million are paid collection accounts. Those 9.4 million American won't be penalized under the new credit-score system.
Unpaid medical bills will now carry lower weight compared to non-medical debt going to collections.
"The median FICO score for consumers whose only major derogatory references are unpaid medical debts is expected to increase by 25 points," according to FICO's release on the new model.
FICO also said it will refine the way in which consumers with "thin files" or minimal credit history are judged. Instead of solely focusing on paid or unpaid bills, the company wrote in the release, it has quantified the various degrees of a consumer's payment history."