Lost in the news about how the most-used credit score brand, FICO, has changed its formula for calculating scores was an important fact: It won’t matter, at least for a while.
FICO, which says its brand of scores is used by 90 percent of U.S. lenders, said its new model, to be released this fall, ignores old collection agency accounts that have been paid off or settled, and it discounts bad medical debt because it’s not a good indicator of creditworthiness.
That’s good news for millions of would-be borrowers who might be able to get loans that otherwise would garner them rejections. But lenders are not obligated to buy the new version of FICO scores, just like you can continue using the old operating system on your computer after a new one is released. It could be years before use of the new score is widespread, said John Ulzheimer, credit expert with CreditSesame.com.
The advice? If you’re someone who has old debts in collection because of medical bills or old debts that have since been settled or paid off, shop around for loans and hope to hit on a lender using FICO’s newest version, FICO 9, due to be released this fall.
“If you want to leverage the consumer-friendly aspects of FICO 9, then you’ve got to find a lender that’s actually using it,” Ulzheimer said. “That underscores the importance of not only shopping for the best deal from lenders, but also the best credit-scoring model.”
If you have old paid-off collections, it’s especially important to shop around. First, your score is likely to change dramatically. Second, FICO’s rival score-provider, VantageScore by Experian, also changed its scoring system, and it claims that hundreds of lenders already use its score that ignores those paid-off old debts.
“So if you’re a consumer who has good credit but for a few paid collections, it would be considerably easier for you to find a lender who uses the VantageScore than it would be to find one that uses FICO 9, at least right now anyway,” Ulzheimer said.
If you never defaulted on a debt, none of this affects your credit score.