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Changes to FICO scoring will boost some borrowers' credit

Consumers in Kentucky who have paid off overdue medical bills might still have experienced low credit scores despite resolving their debt. However, FICO has made a significant change to how the company calculates credit scores. The new method of scoring will limit the ability of outstanding medical bills and those that have already been settled to negatively influence a person's credit score. Although this might not stop creditor harassment for people who have not paid their bills, the move will increase the scores of many consumers.

By altering their scoring model, FICO can provide lenders with improved information to help predict the actual risk of lending to individuals. The premise behind the change is an understanding that people accumulate medical debt for different reasons compared to other types of debt. In many cases, those with medical debt do not realize that they have outstanding accounts. Those consumers often think that their health insurance contributed a larger share their bills, the costs associated with certain treatments and procedures may not be clear to the patient. These differences make people with medical bills generally less risky than borrowers with non-medical debt.

Overdue medical bills that have not been settled could still count against borrowers, but the new FICO scoring model will not reduce scores by as much as before when considering these debts. People whose debt is mostly medical may see a median increase of 25 points to their credit.

The new scoring model could be a relief to people with low FICO scores, but a change in scoring metrics does not change the amount people owe. Individuals who are unable to manage the debt they have accumulated may face wage garnishment and creditor harassment. In some cases, one option for relief may be bankruptcy. An attorney could assist people who are seeking bankruptcy understand how the process may benefit their financial situation.

Source: Reuters, "FICO's new scoring model to help lenders better assess risk", Amrutha Gayathri and Emily Stephenson, August 08, 2014

Source: Reuters, "FICO's new scoring model to help lenders better assess risk", Amrutha Gayathri and Emily Stephenson, August 08, 2014

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