A planned update in the way FICO scores are calculated should help some borrowers qualify more easily for auto loans by putting less weight on overdue medical debt when calculating credit scores, according to Fair Isaac Corp.
Fair Isaac said it expects credit bureaus to roll out the changes starting this fall.
“It could also potentially help consumers with thin files,” that is, consumers with little or no credit history, said Anthony Sprauve, senior consumer credit specialist for Fair Issac. “But you’re going to see the biggest impact around medical issues -- those who have a good credit history except for a medical debt collection.”
The new FICO Score 9 credit scores are the first major update since 2008, when the current generation of credit scores was introduced, Sprauve told Automotive News last week.
The new scores provide more detailed and more up-to-date consumer payment data, including information on partial payments instead of a simple yes or no on whether bills are fully paid up, the company said.
Some consumers will see an increase in their credit score, but in theory lenders shouldn’t experience any increase in risk because the new scores are aimed at more accurately predicting repayment behavior, according to FICO, of San Jose, Calif.
In addition, medical debt represents less overall credit risk than previously supposed, the company said.
FICO said consumers whose only negative information on their credit history is related to medical debt could see their credit score improve by around 25 points.
For customers who are on the border between risk tiers, that could mean less likelihood of default, a lower interest rate, and a lower monthly payment.
Sprauve said FICO has begun introducing the new credit scores to credit bureaus. In turn, he said it’s up to the credit bureaus to decide when to roll out the new scores, following a period of testing and evaluation. FICO expects the new scores to start reaching the market this fall, he said.