Fair Issac Corp. has announced it is making changes to the way it calculates a person's FICO Score - the most widely-used credit score in the U.S. These changes should make it easier for many consumes to obtain credit at more favorable terms.
Two of the major changes are:
- Collections that have been paid off completely will no longer included in the credit-score calculations.
- Medical collections will be given less weight in the credit-score calculations.
These changes should have a significant impact on the number of people who will no be able to qualify for financing. Since the recession and housing market mess, lenders have only approved the most credit-worthy borrowers, as measured by credit scores like the FICO Score.
According to credit bureau Experian, about 106.5 million consumers have collections on their credit reports (64.3 million with medical collections) and about 9.4 million have no balance.
While some critics are concerned that loosening credit standards will result in increasing losses for borrowers, banks and lenders, Fair Issac said it has analyzed the likelihood borrowers with excellent credit with the exception of these accounts before making the changes.
Fair Issac changes their credit score models every so often and lenders may use any model they choose. It may take some time for these changes to affect the mortgage industry since the credit scoring model used by most mortgage lenders is not usually the most recent.
Have questions about your credit or mortgage? Contact me at BarkerLoans@gmail.com or 708.473.7688.
