NEW YORK (AP) — There are changes coming to FICO, a broadly used credit score, that may mean higher credit scores for many consumers. Banks, credit card issuers, auto lenders and other businesses use those scores to decide whether to lend to consumers and how much interest to charge them. A higher score could get you better terms on loans for cars and homes.
WHAT ARE THE CHANGES?
Fair Isaac Corp., the company behind FICO, says there are three significant changes to its metric, which it says is used in 90 percent of U.S. consumer lending decisions.
— Debts that go to collections agencies and get repaid won't count against a consumer's FICO score.
— Medical debts will have a smaller effect on the score. If your only major bad mark comes from unpaid medical debts, FICO says it expects your credit score to go up by 25 points. (Scores range from 300 to 850.)
— A technique to analyze people's creditworthiness if they don't have much of a credit history.
WHY ARE THE CHANGES HAPPENING?
Regulators have focused on health care debts. In May the Consumer Financial Protection Bureau, a government agency, said consumers may be penalized too harshly for medical debt. The CFPB said medical bills are different from some other types of debts because they can be more expensive, unpredictable and caused by disputes between medical providers and insurers instead of bills consumers simply didn't pay.
The CFPB said that consumers who owe medical debt may have their credit scores underestimated by about 10 points.
WHO WILL BE MOST AFFECTED?
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