FICO Retools Credit Scores

screening tenantsFair Isaac Corporation, better knows as FICO, announced that it is making some changes to the way it assesses consumer credit.

This month, FICO introduced the new FICO® Score 9, a more nuanced analysis of consumer collection information which bypasses paid collection agency accounts, and differentiates medical from non-medical collection agency accounts.

This move, FICO says, will help ensure that medical collections have a lower impact on the credit score, commensurate with the credit risk they represent. These enhancements help lenders — and landlords — because it leads to a more predictive credit score.

As a result, the median FICO Score for consumers whose only major negative references are medical collections will increase by 25 points.

FICO has used sophisticated modeling techniques to make the new FICO® Score 9 more predictive of a consumer’s likelihood to repay a debt than previous versions. This latest version of the FICO® Score, the industry-standard measure of U.S. consumer credit risk, captures recent consumer behavior to give lenders better risk assessments across the credit lifecycle and all credit products. It will be available to lenders through the U.S. credit reporting agencies starting this fall.

FICO Score 9 also supports the desire of lenders to better assess the risk of consumers with limited credit history – so-called thin files. In the model development process, FICO data scientists represented a consumer’s repayment behavior in degrees of risk. For example, instead of classifying a consumer as someone who paid or didn’t pay her bills in absolute terms, the various degrees of the consumer’s payment history have been quantified. The end result is a score with an improved ability to assess the risk of thin files.

The Score 9 will also be the most consistent FICO® Score across all three credit bureaus. This generation of the FICO Score uses the same development window across the three different credit bureaus to generate scores that will be as consistent as possible.

FICO is the leader in credit risk scoring, with 90 percent of all U.S. consumer lending decisions using the FICO® Score. Twenty five of the largest credit card issuers, 25 of the largest auto lenders and tens of thousands of other businesses rely on the FICO® Score for consumer credit risk analysis and federal regulatory compliance.

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