FICO Score 9 brought about some significant changes in the way your credit history is scored. This means that your credit scores may look different than the scores calculated with later versions. Here is what you need to know about FICO Score 9 moving forward.
What is FICO Score 9?
FICO stands for Fair Isaac Corporation, which is a company that specializes in analyzing credit. FICO is the most popular credit scoring model, using a wide range of credit behaviors to create a credit score for each person, which helps lenders decide if the person can handle credit.
The general factors for creating a FICO score are:
Length of credit history
Credit utilization, or how much of your available credit you use
Types of credit, such as mortgages, loans, or credit lines
Recent hard inquiries
Each of these factors carries a different weight in the overall credit score. Once calculated together, the general FICO scoring model gives your personal credit a number between 300 and 850 This is your FICO credit score.
FICO credit scores may vary depending on which credit bureau you use. The three major credit bureaus, Equifax, Experian, and TransUnion, may have different information on your credit depending on who your lenders report to. Variations in reporting would cause variations in your overall score, which is why you may have 3 different FICO scores, one from each bureau.
Times change, and so do the metrics for measuring credit. FICO regularly updates their scoring model. FICO Score 9 is the latest scoring model, and brings with it a few notable changes.
How is FICO Score 9 different?
The three main notable changes in FICO Score 9 are how they consider medical debt, rental history, and paid collections.
1. Medical collections
Medical bills can take a toll on your credit, especially if you are delinquent or get behind on payments. If an account goes to collections, it can put strain on your credit report, and may even ruin your creditworthiness in a lender’s eyes.
There are also many times when the person is not responsible for these bills. The collections accounts may appear if the person’s insurance company does not pick up the account and pay for it on time.
Because of this, as well as the large burden they put on a person’s credit report, medical bills now have less of an impact on FICO Score 9 credit scores. Additionally, unpaid medical bills that go to collections agencies will have less of an impact than other non medical debts.
This does not mean that FICO Score 9 gets rid of a person’s medical debt. It simply means that the debt will not have such a drastic impact on a person’s credit score.
2. Rental history
A person’s rental history will now be factored into their credit score with FICO Score 9. However, this will only occur if the landlord or owner of the rental property reports the payments directly to one or more credit bureaus.
Before this, rental payments were not included in FICO scoring. Only those with mortgages would notice their home payments appearing on their credit score. This may be good news for people looking to build their credit or people who need to repair their credit but do not own a home.
Again, this will only be included on your credit score if your landlord reports to the credit bureaus. They are not required to do so, however, so if this seems important to you, look to rent from someone who will report to the bureaus.
3. Paid collections
Accounts in collections can cause significant harm to your credit score. In the past, these accounts still weighed against your score heavily even after you paid them off.
This changes in FICO Score 9. Accounts which charged off and got sent to collections, but were then paid in full, will not negatively impact a person’s FICO credit scores.
This is a big change, as it rewards a person for taking responsibility for their credit, no matter when they do so. It also gives a person looking to repair their credit score a chance to do so, rewarding them for paying down their debt.
This added incentive may help more people pay off their accounts in collections, as doing so may cause a noticeable spike in their FICO credit score.
FICO Score 9 does bring some helpful changes to how your credit scores are calculated. Your medical debt and paid collections accounts will not harm your score as much, and you may even be able to help build your credit through renting.
If these situations apply to you, you may notice a positive change in your credit score with FICO Score 9. With that said, these changes will not replace healthy credit habits. While you may notice a small increase in your credit scores, the only way to make your good credit score last is to keep making healthy credit practices habitual.