Action 9: FICO's new model could raise credit scores

by: Jason Stoogenke Updated:


CHARLOTTE, N.C. - Fair Isaac Corporation, one of the largest credit score companies, is changing the way it sets credit scores by giving less weight to unpaid medical bills.

It will also ignore other prior unpaid bills, as long as they were eventually paid off.

Shavondra Brewster checks her credit score daily. 

"Every point counts," Brewster said. 

She said the slightest change up or down can make a big difference. 

The difference can mean thousands of dollars over the life of a mortgage, according to published reports.

FICO calculates your score as a three-digit number between 300 and 850. 

"You can potentially see your scores go up, and go up considerably, depending on your scenario," John Ulzheimer, of Credit Sesame, said.

Still, he said most consumers probably won't see any major change, so they may be encouraged to work with collection agencies to pay off debt so it doesn't get factored into their FICO score.

You could see higher credit scores, better interest rates and that makes it easier to borrow money.

Critics say that it's then easier to get in over your head. 

"Once you've got the credit, you've got to pay it back, and that's a big problem for a lot of people these days," Howard Strong, a lawyer familiar with credit cases, said.

He said it's like getting a new, sharp knife.

"A knife is a great tool but you can cut yourself ... and it's the same with credit," Strong said.

Brewster said that just because you can borrow more, doesn't mean you can afford more. 

“If you're tempted to use your new score to spend beyond your means, don't do it,” the mother of five said. “That's my advice. Don't do it because in the end, it's going (to) hurt you."

Experts say don't expect to see your score jump right away.  It takes time to gather your information, to calculate numbers, and for lenders to adopt them.  That "lag" time can take years.

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