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Medical Collections
With the new changes, FICO has reduced the impact of medical collections on FICO scores by differentiating medical collection from non-medical collections, and even bypassing paid non-medical collection agency accounts. That means it will stop including in their calculations any record that shows a paid or settled collection account. FICO states that this change is expected to increase the median FICO score for consumers whose only derogatory references are unpaid medical collections 25%. This is a huge win for consumers.

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Benefits For Those With Limited Credit
The latest model will also measure a consumer’s payment history in degrees of risk rather than in absolutes, such as simply paid or not paid. Another improvement reflects a better analysis of reports with limited credit history, or thin files, as it is often called.

From FICO.com: “FICO Score 9 uses a more refined treatment of consumers with a limited credit history and those with accounts at collection agencies, so that lenders can grow their credit and loan portfolios more confidently,” said Jim Wehmann, executive vice president for Scores at FICO. “By applying innovative predictive modeling techniques on recent data to capture consumer credit behavior, FICO Score 9 will extend FICO’s leadership in providing the credit score that most accurately and fairly defines U.S. consumer credit risk.”

FICO has said their new FICO 9 Score will be available this fall and “will be the most consistent FICO Score across all three credit bureaus.” It is used by 90 precent of all U.S. consumer lending decisions, with 25 of the largest credit card issuers and 25 of the largest auto lenders. The only caveat is that it does take a while for a broad spectrum of lenders to adopt FICO’s updates. When they do, though, it is indeed going to improve the lending/borrowing world in the U.S.

References:
FICO.com website
Wall Street Journal article
Chicago Tribune Article

Personal Information such as name, address, date of birth, Social Security Number and employment data (where you work(ed) only) are included.

Account information. Account information includes loan amount, credit limit, balance, payment dates, payment rating and history, to name a few.

Collections by 3rd party collection agencies.

Public records like judgements, tax liens, bankruptcy, etc. are reported.

Inquiries, when and where, but not for how much, and why you applied for credit. Inquiries initiated by you are called “hard” inquiries, which are results from applying for new credit such as credit cards, vehicle loans, mortgage, etc. Go here for more on inquiries and the myth surrounding their impact on your credit score.

Information NOT included in credit reports:

No salary or income history whatsoever is included

Medical history is not included, although medical collections via a 3rd party collection agency may be.

No arrest or criminal records are reported.

Property tax records are not included.

Insurance premiums or insurance claims are not reported.

Personal information like gender, marital status, race, religion, nationality, political affiliation and personal lifestyle is not a part of your credit reports.

Payday loans (unless in collection), debit cards and prepaid debit cards are excluded

Inquiries initiated by you online, called “soft inquiries” are not reported and have no effect on your credit score.

Financial Institution accounts like checking accounts, savings accounts, CD’s, or investment accounts. NSF checks will appear if sent to collections.

While some of the above information like income and assets may be considered by lenders such as mortgage banks, and auto finance companies, etc., in their decision process, you need only be concerned about the information that is reported on your credit reports as far as your credit score in concerned. Information not reported on your credit reports does NOT impact your credit score.

By Blair Warner (see About US page for more info.)

One out of Five Consumers Likely to Receive Meaningfully Different Score than Creditor



WASHINGTON, D.C. – Sept. 25, 2012, the Consumer Financial Protection Bureau (CFPB) released a study comparing credit scores sold to creditors and those sold to consumers.

“This study highlights the complexities consumers face in the credit scoring market,” said CFPB Director Richard Cordray. “When consumers buy a credit score, they should be aware that a lender may be using a very different score in making a credit decision.”

The complete Analysis of Differences between Consumer and Creditor-Purchased Credit Scores is available at: http://files.consumerfinance.gov/f/201209_Analysis_Differences_Consumer_Credit.pdf

The Dodd-Frank Wall Street Reform and Consumer Protection Act directed the CFPB to compare credit scores sold to creditors and those sold to consumers by nationwide credit bureaus and to determine whether differences between those scores harm consumers.

THE STUDY DETERMINED:

RECOMMENDATIONS:

2. Thou Shalt Not Miss Payments. Paying a bill late will hurt your credit, but missing a payment will damage it even more. “If you do so, you can’t make it up,” Sweet says. In other words, making two payments in the next billing cycle will not remove the blemish from your credit history. Whether or not you pay your bills on time determines 33% of your score.

3. Thou Shalt Not Limit Loan Types. Despite what your bank account may think, a car payment and a mortgage may not be enough. Also managing an installment debt, such as a credit card, is a good indicator of credit savviness. There are five elements to the credit score model and revolving credit, which allows consumers to charge and owe different amounts each month, is one of them. “It’s 10% of the score,” says Gail Cunningham, vice president of public relations for National Foundation for Credit Counseling.

4. Thou Shalt Not Close Unused Credit Card Accounts. Actually, just use caution, says Sweet. A factor in credit score models is your utilization, which is your debt vs. how much is available. For instance, if you owe $4,800 on a card with a $5,000 limit, you’re using most of your available credit and this “utilization” will have a negative impact on your score. Counting toward 30 percent, your utilization is the second highest factor in your credit score. You should charge no more than 30% of your available credit, recommends Cunningham.

5. Thou Shalt Not Be A Credit Tease. Don’t run up charges all over town or apply for several cards at once while looking for the best rewards program. Recent inquiries means that you have accessed your credit and this can affect your score negatively. “This signals that you’re desperate for credit and don’t have enough cash available for your purchases,” says Cunningham. She adds that if you are shopping for a major purchase, such as a mortgage or car loan, the inquiries will usually roll together into one.

6. Thou Shalt Not Rob Peter To Pay Paul. Don’t charge anything unless you know how and when you are going to pay it back. One of the benefits of credit is the ability to spread out payments on a big purchase, not to delay paying with hopes that the money will come in – from somewhere. If you need to use a credit card for convenience, use a prepaid card or a secured card that enables you to make payments to your own line of credit.

7. Thou Shalt Not Get On The Call List. When a debt turns into a collection account, it’s an indication that you got yourself in hot water. Once a collection agency jumps into the arena, it becomes the owner of the debt, which will show on your credit history. Trying to make payments to the original debtor will not make the collection agency or the negative mark on your credit go away.

8. Thou Shalt Not Forget The Little Things. That library fine you didn’t pay or the health club contract you signed but didn’t honor can show up on your credit report. Any debtor has the right to report unpaid bills to the credit bureaus, and many of them exercise that right.

9. Thou Shalt Not Negotiate. On paying less than what you owe, that is. If you cannot repay a debt in full and a creditor agrees to settle for less than you owe, you haven’t won the battle. The transaction will be reported as a settled account and this will hurt your credit score. Instead of negotiating to lower the overall amount of the debt, ask to have your interest rate or monthly payment lowered so that you can continue to pay the debt off in full. (Sometimes negotiating is the best choice. Each case is different)