A New York Times article that ran last Friday highlighted a big shift in VantageScore’s predictive model determining a consumer’s credit score. From now on it will ignore a debt once it is paid. FICO® has not changed their formula.
While I applaud VantageScore’s announcement and scoring model change, I am reminded about the confusion on behalf of the consumer that will surround this decision. So lets break down the facts.
- FICO® is the major scoring system used by most lenders. They have not changed the way they calculate paid debt. If you pay a debt after it appears on your credit report, it will still hurt your credit score. In fact, if you pay a debt over 24 months old it will severely drop your FICO® score. FICO® only ignores collections under $100 in the FICO®08 scoring model.
- VantageScore is only used by minor lenders and none of the major mortgage banks. If you want to obtain a mortgage and have derogatory items on your credit report you will still need to obtain a deletion from the debt collector. This is the best way to raise a credit score with many deletions.
- Already many debt collectors have informed our clients that if they just pay the debt in full it will not be counted in their credit score. Again, this change is only for VantageScore and not the widely used FICO®. Do not believe a debt collection firm that says that paying them will improve your credit score. It will not improve the credit score used by most mortgage lenders.
- VantageScore will ignore all paid debt not just medical. So far most of the articles written are about medical debts.
I hope that FICO® will adopt the same stance as VantageScore and will eventually ignore paid medical debt. As of the writing of this article, it does not.Currently their are several bills in Congress that would force a debt collector to remove the medical debt once paid. According to a study done by the Commonwealth Fund, this common sense measure could remove some of the derogatory issues on an expected 7 million American’s credit reports.
If you have more questions about VantageScores or the FICO® scoring models or are having issues with medical debts, contact our law firm at (214) 506-2500 or at www.txclf.com.