FICO is short for Fair Isaax SOrportation is an algorithm that calculates credit scores. Although there are many proprietary credit ratings, FICO is used by approximately 90% of all lenders. This includes lenders for mortgages, auto loans, credit cards, store credit cards, and business loans.
Your credit score affects not only whether you get the loan you apply for, but also the amount as well as the interest rate you will pay. And besides loans, credit scores are also used to determine employment, insurance policies, and bank accounts.
In August 2014, FICO introduced FICO 9, which takes into account three important new factors when calculating your credit score.
What is FICO 9?
Just as there are many credit scores, there are also several options for FICO scores.
Fair Isaacs is constantly updating its FICO scoring products. Every few years they release a new version. They are currently on FICO 10 released in 2020 but FICO 8 remains the most used model.
So why is FICO 9 still important now? Well, because it has made several important changes that are mostly good for consumers:
- Medical Collections — Open medical collections are of less importance in FICO 9.0 than in previous versions.
- Third party collections – This does not negatively impact your credit score if fees have been paid.
- Lease history can be included − Before FICO 9.0, good rental history was not reported, but bad rental experience was reported.
Let’s dive into these changes and what they mean to you.
FICO 9 Change #1: Medical Collections
At the time of the introduction of FICO 9, The Wall Street Journal, citing data provided by Experian, reported that 64.3 million people nationwide had medical collections on their credit reports. With this rampant proliferation of medical fees, FICO 9 sought to level the playing field by reducing the impact these bills have on credit score calculations.
Other FICO scoring models calculated medical collections in much the same way as other types of collections. FICO does not indicate how much this change affected the scoring, other than indicating that the impact will be less.
In April 2022, all three major credit bureaus announced that they would no longer include medical bills on their credit reports – in line with FICO 9 (albeit a few years later…).
FICO 9 Change #2: Paid Collector Accounts
In previous scoring models, repayment of a collection account did not have any special advantages. A person who is in debt may even be motivated to wait until seven years have passed when the fee (paid or not) falls off their credit report.
Read more: Why it takes 7 years to build a good credit history
But with FICO 9.0, collection redemption has made it virtually non-existent in regards to your credit history.
This means that previously paid collection accounts will not only no longer hurt your credit score, but will also give consumers an incentive to pay off those that are still open. By paying them off, these bills will no longer interfere with your credit score.
In a way, this change to FICO 9 has also been beneficial to lenders and collection agencies.
FICO 9 Change #3: Loan History
With other scoring models, the history of the lease was something like an elevator that only went down.
A good rental history has not been reported, even if you have paid your rent on time for many years. But unpaid balances — from breach of lease to post factum damage assessments or withholding money due to landlord refusal — have typically been reported against you.
The FICO 9 model includes your rental history in calculating your credit score.
This is good news for people with a good rental history, or for people with very little credit, who will benefit from a favorable rental reference.
The catch is, unless you live in a large apartment building run by a rental company, your landlord is unlikely to report your rent to the credit bureaus. Instead, you must report it through services such as Experian Boost or Rental Kharma.
Read more: How to get a loan by paying rent
Not all lenders have accepted FICO 9
As mentioned, FICO 10 is the newest iteration, but most lenders are still using FICO 8. Specifically:
- The mortgage industry relies heavily on FICO scores of 2, 4, and 5.
- Auto lenders use FICO Scores 2, 4, 5, 8 and 9.
- Credit card issuers use FICO Scores 2, 4, 5, 8 and 9.
In addition, some lenders also use internal credit scoring models based on their own credit experience. This may also help explain the reluctance to adopt the latest FICO credit scoring model.
Where to get a FICO 9 score
Unfortunately, you really can’t.
FICO charges a fee for the institution to use its actual credit scores. In general, when you see an offer of free credit scores, it’s not 100% the real deal (although they are useful in that they give you a ballpark figure of what you might have). These are usually educational scores calculated in parallel with FICO scores.
This helps explain why the credit scores used by a lender are often very different from those you get from a free credit rating service.
Read more: What is the difference between your FICO scores?
bottom line
FICO 9 has opened up many new and useful features, including the exclusion of medical fees from the calculation of a consumer’s credit score and the inclusion of rental history, which can help those who have limited credit but pay their rent on time.
Third party collections, once redeemed, will no longer affect your credit score, meaning you won’t have to wait seven years to get rid of the old mistake.
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