FICO announces new credit scoring system for medical debt
Employers may now need to take a closer look at potential employees’ credit reports, as credit-scoring company Fair Isaac Corporation (FICO) has announced plans to revise the way it reports medical debts that have been sent to collections. One third of Americans find themselves stuck with medical debts. The new system, also known as “FICO 9,” would take existing outstanding medical debts that have been sent to collections and weight them to be of lesser value on a credit report than debts such as student loans or credit cards that have gone to collections. Because of this, those with outstanding medical debts, but little other debt, may actually see an improvement in their credit score number. In addition, medical debts that had previously been sent to collections, but that have since been paid off, will be erased from one’s credit score with FICO 9. This could result in credit score increases of up to 25 points, according to Cathy Curtis of the National Association of Personal Financial Advisors. (A statement that says a medical bill was sent to collections will remain on the report for seven years, however, even though the score number would not be affected; seven years is the standard for credit reporting.) The system previously used, dubbed “FICO 8,” weighted all debts equally, regardless of the type of debt or how it was acquired. FICO 9 will alter that, because becoming ill or injured should not have the same employment or financial repercussions as racking up thousands of dollars in credit card debt. Employers will be able to see the difference in the types of debt under FICO 9’s reporting when looking at job applicants’ credit reports. However, even with FICO 9’s improvements, everyone should still check their credit reports every year to ensure accuracy and file a correction if they notice any inaccuracies. In addition, if a medical debt has been sent to collections incorrectly and it pops up on the credit report, contact the medical office and credit bureau to have the debt investigated; even though medical debt will be weighted differently, it can still drag a score down if left on the report when it should not be there. Employers should also be aware that they may have to ask for FICO 9 reports specifically, as many companies and mortgage lenders are still using FICO 8 and even FICO 7 as their primary scoring models. photo credit: urbanbohemian via photopin cc]]>
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