20 Nov How FICO09 Could Increase Homeownership
We all know that when a person has a poor credit profile, he or she is less likely to buy a home. Many consumers remain without access to affordable credit and more importantly, no access to the American Dream of homeownership. We continue to witness people’s hard work being wasted to pay unnecessary higher interest rates and fees to finance their debts, denying them the prospect to save for a down payment on a home.
Furthermore, following the recent recession, many lenders have only approved the best borrowers. Those few others who struggled to get a loan with a low score continue to pay, for life, thousands of dollars more in higher interest costs. According to a survey by the Consumers Federation of America in 2007, consumers could save 20 billion dollars a year in finance charges if they improve their credit score by a mere 30 points.
Fair Isaac Corporation (FICO) recently issued a press release regarding their upcoming credit scoring model FICO09, available to credit bureaus this fall and later this year to creditors/lenders. One of the most important changes of the new model is an unprecedented shift in treatment of a collection account and in particular, a medical one.
The new FICO09 changes are easy to understand and put in plain words. When FICO09 is used by a creditor/lender, any paid or settled collection account is not considered in the calculation of the credit score. In addition, the new scoring model will assign less negative weight to unpaid medical collections. Again and as above, the starting score plays an important factor in determining its negative impact on someone’s credit score.
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