13 Nov Will New FICO09 Ease Path to Homeownership?
People with poor credit profiles are less likely to buy a home, but the newest credit scoring model from the Fair Isaac Corporation (FICO), FICO09, may change all that. One of the most important changes in the new models is an unprecedented shift in the treatment of a collection account and, in particular, medical collections.
Presently 90 percent of all financial institutions use the FICO scoring models when making credit decisions. Existing FICO scoring models treat a collection account as a very negative event when weighing financial risk.
The impact on an individual’s score differs, depending on the score before the collection event appears, but it can be significant and meant the difference between qualifying for a loan or not.
Accordingly to the Fair Credit Reporting Act (FCRA), a collection account remains on a consumer’s credit report, even if its paid, for seven years and six months from the date the account was originally 30 days delinquent.
When the NEW FICO09, however, any paid or settled collection account is not considered in calculation of the credit score. In addition, the new scoring models will assign less negative weight to unpaid medical collections.
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