FICO Recalibrates Its Credit Scoring

Your Credit May Improve By As Much As 25 Points

FICO, Fair Isaac Corporation, has been gauging people’s credit and predicting their ability to repay loans through a sophisticated system of predictive analytics since the late 1980s. As they learn more they adjust their system. The last time they made an adjustment was in 2008, as the Great Recession was coming full swing. This change is due to take effect sometime in the Autumn of 2014.
Now they have further refined their system to what they consider to be the most precise yet in predicting ability to make payments on a loan, and the results may raise credit scores for many by as much as 25 points. The main changes are:
  1. The elimination of a record for failing to pay a bill if that bill has been paid or settled.
  2. Less weight will be given to unpaid medical bills.
  3. People with a limited credit history will be evaluated by use of a new algorithm rather than simply being given a low score.

The reasoning behind these points is that, in the first one, even if the amount was very low and it had been paid off, collections can stay on a person’s credit report for as long as a bankruptcy, up to seven years. In the second case people often do not even know that their insurance company didn’t pay a bill, something happening with increasing frequency since 1996, and by the time they find out to remedy it, the late charge or collection has already been reported. Throughout most of this century the cost for medical supplies and drugs have skyrocketed, so much so that from 2005 when 58 million Americans were struggling to pay their medical bills, to 2012, that number shot up by over 29% to 75 million, or 41% of all American adults. Not being able to pay for an unexpected medical emergency or having the insurance company deny it is not the same as being a slow-paying, unreliable borrower.

Read on here for the story.

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