As a veteran of the credit industry since 2003, I do enjoy the hype of the new major FICO changes that are announced every so often. They get the general public thinking about their credit scores and seeking advice on how to improve their credit scores given the new algorithm. But the problem is that this is publicity hype that often confuses the general public and often has them act against their own best interests.
Despite the hype, most likely nothing will change unless the lenders adopt the new formula. I do not see this happening right now. Currently most lenders use FICO 4 which is several generations older. It is more conservative of a model than the FICO 9. It is a tried and true model that the lenders have their own internal data to back up the success or failure of the lending using the FICO 4 credit score. Lenders are slow to adopt to a change in the credit score algorithm because at the end of the day it is their money they are lending. They do not want unneeded risk.
Lending is more than just a credit score. Lenders often sell the loans to another investor and the investor may have additional requirements beyond just a credit score. It is not uncommon that they require all collections over certain dollar amounts, no “Consumer Disputes this Item”, no rental collections etc to appear on the credit report. Currently, many investors do not want to see more than $2,000.00 in current collections not including medical items. So even if the new FICO 9 does ignore medical and paid collections there may be more for a consumer to resolve before they can obtain their mortgage.
Confusion creates winners (debt collectors) and loser (consumers)
The confusion of the situation is creating a new set of winners and losers. Unfortunately, consumers are not winning. Confusion is caused by the debt collectors are using the hype of FICO 9 as a justification to have the consumer pay now. Debt collectors and creditors are already informing our credit law firm that based on the guidelines they will now settle for more money (if at all). Many debt collectors that used to give courtesy deletions for a settlement to consumers are no longer doing so. They use the new FICO 9 to let consumers know that they can just settle and it will no longer hurt them. Many consumers will comply because they read or heard in the news the hype about FICO 9. They will pay to the debt collector out challenging the debt collector of the accuracy of the debt, their ability to report the debt, or in general assert their Federal and State rights because they think they will see a credit score boost if they just pay. Consumers will pay more money and pay for debts that may not be owed under this new equation.
Debt collectors should know that the lenders have not adopted the new formula yet. Paying the debt right now the consumer’s credit score will lower because it will update an older tradeline on the credit report.
What to do now?
Consumers should always be aware when dealing with their credit and hype surrounding new credit news.
- Seek legal advice from a Consumer Credit Attorney before paying debt collectors.
- Seek assistance from a professional mortgage advisor before settling any debt.
- Should be wary about paying any debt collector without obtaining a deletion from the credit report
- Ask their potential lenders what credit scoring model they are using.