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A single financial score largely determines whether consumers can borrow money for houses, cars and other wants and needs — and how much loans will cost them. But it's expected to get easier for some consumers, as Fair Isaac Corp. changes how it tracks those important FICO scores.
The San Jose, California, company recently announced plans to change the weight it gives medical debts in making the calculation. And it said it will stop counting debts that went to collection if the bill has been paid or settled.
The change will be implemented in the fall.
Fair Isaac Corp. developed a credit-score formula that's most used to determine credit-worthiness. That score, FICO, is directly derived from its name.
The new FICO Score 9 represents a "more nuanced way to assess consumer collection information," the company announced. In a written statement it said that "this will help ensure that medical collections have a lower impact on the score, commensurate with the credit risk they present. These enhancements help lenders because they result in greater precision. At the same time, the median FICO score for consumers whose only major derogatory references are unpaid medical debts is expected to increase by 25 percent."
"The moves follow months of discussions with lenders and the Consumer Financial Protection Bureau aimed at boosting lending without creating more credit risk," according to the Wall Street Journal. "Since the recession, many lenders have approved only the best borrowers, usually those with few or no blemishes on their credit report."
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