If you are like most people you probably don’t check your credit report often, unless you need to apply for something or have been alerted to a problem. Not only is this habit not healthy for your financial profile, but you could be missing out on some important changes to come.
Calculating Scores
Currently, the scoring system for determining scores is called FICO 8. In addition to looking at your overall debt ratio and account standings (satisfactory versus delinquent), this scoring model also equally factors inpaid and unpaid collection-agency accounts that exceed $100. While it makes sense that any unpaid balance be used to calculate your score, it isn’t clear as to why paid (i.e resolved) accounts still factor into the score.
Beginning in September, FICO 9 scoring system will be released to the three major credit reporting bureaus. Initially, the bureaus will be using FICO 9 to test and validate as a scoring system before deciding whether or not to adopt some of the changes included in this new system. One of the changes in the FICO 9 model is that it will ignore paid collection accounts, as well as unpaid and paid medical debt.
The ignoring medical debt aspect alone could be a huge improving factor for many Americans whose scores have been drug down due to the high costs of medical treatment in recent years. Senior consumer credit specialist, Anthony Sprauve says, ” Our research shows that for consumers whose only major derogatory in their credit report is unpaid medical debt, that it is not an indicator of their inability to repay their debts. This type of unpaid item is not as negative as a regular unpaid collection would be. That’s why we adjusted the algorithm.”
Those affected by medical-debt sluggish scores should keep a close eye on their credit report in the coming months and take steps to ensure their information is accurate. When scores improve, it could be time to consider a loan or line of credit that could further boost scores through responsible use.
